Wednesday, August 15, 2007

'Made in China' recalls hit financial markets

Chinese manufacturers are once again in the spotlight after Mattel yesterday made a further recall on more than 18 million Chinese made toys. Some toys were recalled after small magnets were found to have worked loose giving rise to the risk of small children choking on the parts [CNN]. The BBC said that there had already been three cases of such instances. Mattel made public statement to alleviate the damage control. But whilst China has been blamed for poor standards and lack of proper quality control, the country’s authorities have reacted little citing only that of thousands of exports to the US, only 1 in 10,000 had created cause for concern. China has also said that US importers should take some of the responsibility, saying that the products had been checked by US importers. Meanwhile there is little coverage in the Chinese media and difficult to gauge the public reaction to the vast number of reports that continually surface in the western press. The damage to the ‘Made in China’ label could seriously affect the whole Chinese export market. Even if, as China’s authorities suggest, the cases are isolated, the public perception is shifting dramatically. Consumers in the west are becoming increasingly uncomfortable when it comes to buying products made in China, seeking where they can to by domestically made items.

For those that live in China, or even those that visit, food safety has become an issue of extreme concern. John Vause, CNN’s Beijing correspondent, writing about his living experience in China’s capital, says he is filled with dread when eating out. “Eating out in China used to be one of the great experiences of living here. I often thought going out with friends and colleagues for dinner was a bit like the game of "Hungry Hungry Hippos" -- vast quantities of amazing food that made dining a pleasure. Best of all, it was affordable and palatable,” he says. But after all the recent food scares “the joy of anticipation of what the next dish will bring has been replaced with, well, the dread of what the next dish may contain.” He talks about how his wife, who lives with him in Beijing, seeks out US made products and milk imported from Australia and New Zealand. But avoiding Chinese made products is, he says, “unavoidable”. Drinking water is of particular concern with, even according to Chinese authorities, more than a third of bottled water found to be counterfeit. Many of his friends who have lived in China for some time, say his fears are unfounded. They express the view that “in a country this size there will always be isolated cases like the ones that have surfaced lately”. Outside of China, avoiding products made in the PROC is virtually impossible. CNN reports on one Louisiana shopper who has made an effort to buy products not made in China. The experiment started soon after Christmas 2004 as Sara Bongiorni sorted through gifts and wrapping paper. It quickley became apparent that almost all of it came from China. "I thought, you know, it would be fun just to see if we could go a whole year ... without China," she said. "It certainly took over our whole life. It became an all-consuming project."

When it came to food, she says it was impossible to discern if the ingredients had originated in China. A recent USA Today/Gallup poll found 46 percent of those polled are "very concerned" about the safety of food imported from China; another 28 percent said they were "somewhat concerned" about Chinese food products. The United States requires labels on seafood to mark where it came from. However, that's the exception. With most foods, companies are not required to label where ingredients come from, only where the food was packaged or processed. The same is true in European countries where labeling is often unclear or ambiguous.
Ms Bongiorni, who has documented her experiences in a book A Year Without ‘Made in China’, says "You know the source of your tennis shoes, but you don't know the source of your processed foods…you are really at a loss to make an informed decision."

Domestically, China may be seeing the result of bad quality control checks. Shoddy construction has been blamed after a bridge collapsed and killed 36 on Monday. Two officials have been arrested according to authorities [CNN]. Witnesses say they heard a rumble and saw stones fall from the structure Monday afternoon after construction workers removed scaffolding from the 42 metre high, 270 metre long vehicle and pedestrian bridge across the Tuo River in the southern town of Fenghuang. "The whole thing collapsed," said Nong Xiaozhong, one of two survivors in a 12-man construction team working under the bridge. CNN reported that the collapse was likely to fuel already deep public concerns about the quality of construction in a country undergoing breakneck economic development and where corruption among contractors and officials is common.

The effects of these negative reports emanating from China is adding to the the pressure on an already volatile world financial market. Stocks have been rocked this week by domestic problems in the US which saw several days of uncertainty with the Dow dropping significantly [BBC]. The sudden spate of recalls of Chinese made products is also affecting the Asian share market and western companies which rely heavily on Chinese exports. A recall by Nokia of mobile phone batteries also upset the finacial markets this week [BBC]. The batteries made by Matsushita were said to pose a risk of fire or explosion. It is not the first time Matsushita has been the focus of a battery recall. In 2006, laptop batteries were recalled after a similar fault was identified [BBC]. In each case the country of origin has not been identified.

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