What’s the problem?
For the past decade, the West has enjoyed an unprecedented period of high growth and low inflation. Prices for everything from food essentials to electronic gadgets have been kept down by exports from emerging market countries in Asia and South America. But that could be under threat amid growing evidence of safety problems in the world’s workshop, China. This month, huge US toy maker Mattel shocked markets by recalling up to 18 million toys, spanning 71 different products (including big sellers like Thomas the Tank Engine, Dora the Explorer and numerous lines of children’s jewellery) due to dangerous levels of lead in the toys.
Is this just about toys?
It wouldn’t be such a problem if it was. In export terms, toys only make up around 1% of Chinese exports (although that’s still around 80% of all those manufactured worldwide). However, the suspect toys join a growing list of potentially dangerous Chinese exports. This week the New Zealand government confirmed that it is looking into claims that some cheap imported Chinese clothes contain up to 900 times the permitted level of formaldehyde, which can cause skin rashes and allergic reactions. A New Zealand retailer, The Warehouse, has started to recall Chinese-made pyjamas after two pairs caught fire, injuring their owners. Clothing and textiles are much more significant in export terms, at around 13% of Chinese exports, says the FT.
So what’s gone wrong in China?
The suspicion that rapid Chinese growth rates must come at a price may be well founded. Cottage industries have sprung up in their thousands to meet domestic and international demand for cheap food and goods. The authorities estimate that more than 80% of China’s food manufacturers employ less than ten staff. Many are small, family workshops set up in little more than backyards. These businesses have little incentive to meet quality standards, even if these were a norm in China; their sheer numbers make it next to impossible for any one body to police them. The firm AT Kearney reckons China would have to invest around $100bn just to resolve its sub-Western food standards, let alone deal with any of the issues facing other products.
How has Beijing responded?
Internally, the Chinese hope a less than subtle show of strength may deter firms from selling sub-standard products – the head of the Food and Drug Administration was recently shot following a problem with pet food in the US. However, such gestures are hardly likely to stop a vast, sprawling export industry, which, in safety terms, seems to be running out of control. As a result, Beijing has gone on the offensive. Delegations are being accepted from countries such as the US to advise on quality control, but the head of China’s safety watchdog reacted angrily to the latest clothing scare, claiming the West was using the issue to start a “new trend of trade protectionism”.
What does this mean for the West?
The growing fear is that these problems could further jeopardise vital trade relations with America. According to the US-China Business Council, imports from China total $288bn a year, including 40% of all consumer goods. As a result, America’s official response to the early pet-food scare was fairly muted – inspections on pet food were simply stepped up. But calls for greater trade controls are becoming more strident. This month, the US Department of Health complained of “insufficient infrastructure” in China to deal with “the safety, quality and effectiveness” of products. Hillary Clinton expressed the mood of many US consumers when she declared, “I do not want to eat bad food from China or have my children play with toys that are going to make them sick”. As The Independent put it: “we are now one more step down the path of worsening relations between the economic power of the 20th century and that of the 21st”.
So what is the likely impact?
The era of cheap Chinese goods could be ending; bad news for global inflation. After all, the middle classes in emerging market countries are no more likely to buy risky products than Westerners are. Behind the bluster, the Chinese are frantically investigating ways to raise quality standards, which will inevitably mean more costs. India is keen to muscle in on China’s markets but will also have to prove it can produce goods to a minimum standard. If that doesn’t happen quickly then, fearful of losing custom, Western firms like Mattel could start sourcing toys from Europe, where safety standards, and prices, are higher. In this case, price rises seem inevitable and could rapidly start to feed through to customers – Hamleys in London has even warned of toy shortages in the run up to Christmas.
Are there no rules on toy safety?
Yes, but they are often either poorly drawn up or not properly enforced. Internationally, there is a limit on lead in toys of 0.06%. However, there is some confusion about the status of products such as children’s jewellery, which, in the UK, is technically not a ‘toy’. For example, when The Sunday Times went shopping in London, the newspaper claimed it was easily able to buy a £4.99 child’s bracelet containing 93% lead. In the US there is an enforcement body called the Consumer Products Safety Commission, but, armed with what the Times claims is around 120 inspectors covering 15,000 products, they depend largely on the good faith of profit-conscious companies when it comes to removing dangerous products.