China’s export success is based on supplying goods more cheaply than its competitors. Mere cost advantage is not everything, however. Over many years, China has also built itself a reputation for good quality and increasingly high value-added products across a vast array of categories.
Now this is under threat. In both Europe and America, China has been the focus of a series of product recalls that could destroy its reputation in a way that no other case of trade friction has done.
In Europe, the principal focus has been toys, with Mattel making three recalls of China-made products in recent weeks. One of these recalls involved 83 different Nickelodeon and Sesame Street toys distributed in 11 EU countries as well as Croatia and Switzerland.
It was feared the products were contaminated with lead, although the company said that the bulk of the stock was still in warehouses, which arguably shows that at least in this case the safety system worked.
The recalls in Europe have created the impression of a huge amount of substandard Chinese goods flooding the market. It is true that China features heavily in the EU’s RAPEX alert system for dangerous consumer products.
In 2006, products from China accounted for 440 RAPEX notifications, or 48% of the total. About 80% of notifications on toys concerned China-made products.
Even though this can be put down in part to the huge amount of goods, especially toys, that the EU imports from China, the figures are causing concern. During a visit to China in July, Meglena Kuneva, the EU Commissioner for Consumer Protection, insisted that Europe would not compromise on consumer safety.
In an apparent sign that it realizes the seriousness of the problem, China has agreed to increase enforcement activities and to make a detailed report to the EU on their preventive market surveillance mechanism and follow-up actions to RAPEX alerts. The EU is also carrying out a review of its own procedures, and the results from both sides will be discussed at the EU-China summit in November.
Uncertainty exists at both ends of the supply chain. The recent cases have revealed considerable doubts over the ability of even major companies to control their supply chains.
At the same time, while Europe has common safety standards, enforcement systems are far more disparate – a recall offense in one country may just warrant a slap on the wrist in another. This highlights the difficulty of supplying goods with complex sourcing in multiple markets across Europe.
But the problem for China is wider than consumer safety. While no one in Europe is calling into question the fundamental reliability of China as a supplier, the recent problems have certainly added to the doubts. Even if the substandard products only constitute a tiny fraction of the goods imported from China, they threaten to undermine consumer confidence.
Despite moves up market, China’s exports continue to comprise a large proportion of cheap, low-quality consumer goods. In itself, meeting the strong demand for this kind of product is not a problem.
Most Europeans barely pay attention to which of the contents of their shopping trolleys come from China and which do not. But they are concerned about safety – no parent wants their child unwrapping Chinese-made toys at Christmas if it means a trip to the emergency room on Boxing Day.
If consumers do start looking for the “Made in China” label and rejecting goods on the basis of a dodgy reputation, it would spell disaster for China’s myriad exporters.
Both EU governments and the Commission tend to take their consumer protection responsibilities very seriously. The EU insists that it is not trying to use the issue as an excuse to find new ways to protect regional companies from Chinese competition. In its defense, unlike the US, issues of product safety have yet to acquire a political dimension in Europe.
But at the very least the issue of product safety will become another entry on the list of difficulties in the EU-China relationship. It is one that both sides have a strong interest in tackling, for the EU to protect it consumers, for China to protect its producers.