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BIZCHINA / Weekly Roundup
China's current challenges are only too familiar
By Eliot R Cutler (China Daily)
Updated: 2007-07-20 16:20
The author Eliot R Cutler is the managing partner of the Beijing office
of Akin Gump Strauss Hauer & Feld LLP, an international law firm. He is
also a former associate director of the White House Office of Management
and Budget.
John F Kennedy famously called Washington a city of "northern charm and
southern efficiency". Someone old enough to have lived in Washington when
it was a small and sleepy capital finds surprisingly familiar the drama
playing out in China these days over the safety and reliability of
everything from drugs to drinking water to automobile parts. Like 33 1/3
rpm records played on a 78 rpm Victrola, the music sounds different when
it is played at warp speed, but if you listen carefully enough, you can
recognize the tune and even pick out most of the words.
These are serious matters, no doubt about it. My wife and I are careful
about where we buy toothpaste and aspirin, we wonder where the bottled
water really comes from and we think twice now about eating baozi and
some of our other favorite foods. We shudder to think about what is in
the air that we are breathing, and we wonder how China will save its
rivers and streams from the ravages of careening growth. But there is
nothing happening in China today that is fundamentally different from
what has happened in other countries - including the US - at other times.
These are the sounds and groans (and dangers) of a free-wheeling market
economy transforming itself into one that soon will become more regulated
and even more internationally competitive. Most of China's safety and
quality problems are caused by good people trying to do their jobs in a
domestic marketplace that is so highly competitive and unregulated that
it often accounts for nothing but the most direct costs.
In many of its sectors, China's booming economy is one of the most
cutthroat in the world: Factories pare margins to the bone in order to
beat out their neighbors for orders and market share, and they eliminate
as many costs as possible. Bad ingredients are substituted for good ones
if they are cheaper and non-apparent, and costs for largely external
benefits, like clean air and water, are not incurred when they are
ineffectively mandated and cannot be recovered in product pricing.
Even some of China's best and most responsible companies, those with
genuine ambitions to produce high-quality goods, are sometimes forced to
choose between losing money, market share or both. Caught between Scylla
and Charybdis, those that succumb and sacrifice quality in order to
remain price-competitive find themselves disciplined either by growing
domestic outrage or by international regulators who refuse entry to
shoddy and unsafe goods.
Does this sound familiar? Of course it does. Go back and reread Upton
Sinclair. Recall the sweatshops in New York's garment district or the
children working in New England's textile mills. Remember what sparked
the creation of the Food and Drug Administration and, not so long ago,
the Consumer Products Safety Commission. Before he became a gadfly and a
regular presidential candidate, Ralph Nader was an important consumer
muckraker ... less than 40 years ago.
This country is now furiously engaged in a remarkable frenzy of
self-examination and criticism. As China looks at itself in the mirror
and prepares to face the world's markets, what should we expect will
change?
Well, past is prologue. Notwithstanding the differences between our
politics and our cultures, there is nothing so fundamentally unique about
the challenges facing China's market economy - particularly in terms of
domestic expectations and international competitiveness - that we should
be surprised to find its economy become much more highly regulated and
the national government endow itself with considerably greater reach and
leverage.
(For more biz stories, please visit Industry Updates)
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