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China Learning about Resiliency and Trust

July 19, 2007


I have written several posts that discuss the important role that trust plays in supporting the global economy. In recent weeks, China has learned a costly lesson about trust. It began with the pet food scare and quickly moved to exported food and other products intended for human consumption. China’s immediate response was to execute its senior food regulator, but it was unclear to whom that severe signal was being directed. The New York Times editorial staff responded to this episode by sending a signal of their own to China’s leadership reiterating the importance of trust not punishment [“Killing the Regulator,” 16 July 2007]. They wrote:

“The Chinese government’s extraordinary decision to execute its chief food and drug regulator for taking bribes and allowing the sale of tainted drugs is a perfect example of all that is wrong with China’s approach to regulation. Beijing’s leaders — who disdain the idea of their own accountability — may think that killing the regulator is enough to reassure consumers at home and abroad that China is now ready to guarantee the safety of its products. But they’re wrong. What China needs is an effective and transparent regulatory system and a clear understanding that its export boom will suffer if it continues to sell tainted food, toys and toothpaste. Until that happens — and there is no guarantee that it will — American regulators will have to do more to screen Chinese imports to protect American consumers.”

The timing of this latest crisis in confidence couldn’t be worse for China’s leaders. They are doing all they can to focus the world’s attention on what is good and vibrant about China as they prepare to welcome the world to the 2008 summer Olympics. The New York Times editorial goes on to list a litany of problems that continue to plague China’s consumer sector. It also admits what I have seen on my numerous trips to China — China has a new breed of leader who is committed to making China world class in every way — including consumer safety.

“The good news is that for the first time China’s leaders are talking about the need for more and better regulation. And Washington and other governments can help with offers of technical advice and warnings about the cost of failing to take it. But the scope of the problem is too big, too complex and too urgent for the United States — with $300 billion worth of Chinese imports a year — to wait for Beijing to act. American importers need to provide the first line of defense. Companies like Wal-Mart should send inspectors regularly to visit the factories of Chinese suppliers, to ensure that products are up to acceptable standards. Ultimately the American government will have to enforce these norms.”

While China’s long-term efforts will likely prove effective, its short-term public relations efforts may be backfiring. Washington Post Foreign Service correspondent Ariana Eunjung Cha believes that China’s leaders have concluded that the current crisis is about bad press not Chinese regulation [“After Silence, China Mounts Product Safety PR Offensive,” 14 July 2007].

“Scanning the headlines in the Chinese press, it’s easy to conclude that the global brouhaha over product safety is not about China — but about America. Investigative reports in the state-run media delve into the case of an exploding cellphone purportedly made by U.S.-based Motorola that allegedly killed a young man. They warn consumers not to use contact-lens solution produced by U.S.-based Advanced Medical Optics, which has been linked to rare cases of blindness. And they play up recalls of U.S. beef. Faced with mounting international concern over the safety of some of the products it exports, the Chinese government — often perceived as defensive and clumsy in how it handles public relations — is firing back.”

Cha reports that China has flooded Washington with lobbyists and hired well-known public relations firms to get their message out.

“The result has been an aggressive campaign to save the ‘Made in China’ label by presenting an alternate view on consumer safety and globalization. The message is that China isn’t the only country that has had problems with the products it exports. China, as government officials have been pointing out in recent days, rejects U.S. imports at a rate that is just a little less than the 1 percent of Chinese products rejected by the United States.”

I don’t think the “Made in China” label has been seriously undermined in areas except the food sector(both human and pet) and toothpaste sector, which have received the most press. China’s leaders seem to think that if they can show that bad things are happening to their consumers who use imported products foreigners will be more sympathetic to defective products that originate in China. Their hopes are ill-founded. Unlike other developed countries, China has no history of strong regulation upon which trust can be based. It is still trying to build that history of trust and pointing fingers at others does nothing to help. Cha does agree that China’s leaders are taking the matter of trust more seriously, even as they mount their PR campaign.

“At the same time, the Chinese government is trying to show that it is taking seriously recent recalls by making examples of individuals and companies that allegedly contributed to the problems. The recalls have included pet food laced with an industrial chemical, toys coated with lead paint, defective tires and toothpaste made with toxic chemicals. The government has played up the fact that Zheng Xiaoyu, country’s former chief food and drug regulator, was executed this week and that 180 factories that put industrial chemicals into food have been shut down.”

Still, Cha insists, it is difficult to break habits fostered by years of propaganda aimed at putting a happy face on dire situations — sort of like putting lipstick on a pig. China’s propaganda machine is changing, however. Where once it was used primarily to influence internal politics, it is more and more geared to getting its message to foreigners. While such propaganda does little to foster trust, the fact that Chinese leaders care about foreign perspectives is a good sign. They are trying to connect.

“When questions about Chinese food safety arose in March, following the death of scores of pets in the United States, the Chinese government’s response was silence. Then it was denial, as officials brushed off the accusations as fabrications and called them another salvo in a growing trade war between the two countries. But in recent days, the government has gone on the offensive. It is issuing almost daily statements saying how much it is doing to improve food and consumer safety. On July 3, it reported it was stepping up anti-corruption efforts. On July 4, it said it would ban firms that advertise medical claims that have not been approved by the government. On July 5 it said it was working on the country’s first food recall system. … In a two-hour session with reporters on [10 July], a panel of high-ranking officials from five agencies responsible for food safety handed out about 50 pages of information in Chinese and English about specific actions China is taking to overhaul its food and drug safety system. The officials repeatedly assured reporters that China’s government is ‘a responsible government.'”

Still, admitting errors does not come easy for the communist regime (or others for that matter). Take, for example, a recent news conference held in Beijing. Cha reports:

“At a news conference last week, Qin Gang, a Foreign Ministry spokesman, uncharacteristically fired back at reporters who asked if he would comment on why the quality of Chinese exports had become an issue of such intense debate worldwide. ‘Why don’t you tell me?’ he said. ‘If the media made less sensational news, the situation might not be so bad. . . . Chinese exports are at least as safe as U.S. exports — if not better than them.'”

To underscore the fact that things are changing, Cha’s article included a critical comment from a university professor — something that would have been unthinkable in the past.

“Shi Anbin, an associate professor of media and cultural studies at Tsinghua University in Beijing, said that trying to turn the tables and focus attention on problems with U.S. products is ‘not a wise strategy. We need to face our own problems rather than pointing an accusing finger at a scapegoat,’ Shi said. ‘I believe Chinese officials still need to learn some PR and communication skills.’ … Meanwhile, many Chinese companies that have been caught up in the recent recalls because they have produced shoddy products or because they compete with companies that do are taking their cues from the government and scrambling to distance themselves from the scandals. They frequently say it is unfair to treat all Chinese companies like criminal operations.”

This winnowing process, accompanied by a strengthened regulatory and inspection regime, will go a long way towards helping China build the foundation of trust it needs to stay atop the global economic pyramid. Cha’s article concludes with comments from a Dan Harris, an occasional reader of this blog:

“Dan Harris, a U.S.-based attorney who runs a popular China law blog and represents small to mid-sized companies doing business with China, said the shift in the government’s public relations strategy ‘is definitely smart on their part. They are not going to convince Americans that everything is okay just by denials.’ He predicted it would take years, if not decades, to undo the damage done to the reputation of Chinese manufacturers in recent months. ‘My view is that no matter what they say they are going to do and no matter how much they want to do it, the problem is so massive and so deep-seated that I think it’s going to take huge amounts of money and a very long time for it to be cleaned up,’ he said.”

Dan is right. Trust must be earned and that takes years. Trust is developed more by actions than by words. China will likely continue its PR campaign — because perceptions do matter — but eventually PR must be replaced by action that fosters genuine trust. China will get there, but, as Dan says, it’s going to take a very long time.

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