Is 'Made in China' another bubble?

Fed up with a constant diet of bad news about quality and safety problems, a Reuters news dispatch with a Beijing dateline reports some Chinese are taking out their frustrations with biting jokes on the Internet about the seemingly never-ending scandals. We have all heard about the thousands of Chinese babies made ill and three dying after drinking melamine contaminated milk.

One joke, entitled “The lucky day of a Chinese”, takes a look at all the dangerous or unsanitary goods the average Zhou could run into on a daily basis. “Get up early, clean your teeth with carcinogenic toothpaste, and drink a glass of expired milk with excess levels of iodine and contaminated with melamine.”

One can also eat other delicacies during the course of the day like eggs tinted with banned food colorant Sudan Red, eels fed on contraceptives, and cabbage washed with DDT — all related to previous health scares in China. Don’t forget to miss out on “double dead” pork from pigs which have died of disease. “What a great day!” the joke ends, sarcastically.

If the locals are frustrated, the rest of the world is simply scared to eat any food product made in China. The limited testing facilities of our Food and Drug Administration has been stretched beyond limits as the agency worked overtime to test a growing number of China made food products. Even then, our consumers have taken it upon themselves to be more cautious by avoiding Chinese made food products altogether.

If the Chinese government is not careful, “Made in China” may turn out to be another bubble that will soon burst. This will add to the economic and political difficulties brought about by massive unemployment due to factories closing as a result of declining consumer demand in the US and Europe. If China is unable to restore trust and confidence in Chinese made products, a lot of what China has achieved thus far will be at risk.

Actually, I am not that surprised at the failure of China’s quality control officials to stop sub-prime goods from being exported or sold domestically. Its $2 trillion reserves aside, China is still a developing country like ours. It is still in the process of making quality a non-negotiable standard that every business operation, every manufacturing worker must live by everyday.

They are still pretty much like us in viewing quality merely as “nice to have” but can be sacrificed as demanded by the bottom line. Puede na is as much a Chinese shortcoming as it had been and still is ours. So is outright cheating on quality. Playing a cat and mouse game with regulatory agencies is seen as a battle of wills with the under equipped and under supported bureaucrats.

Sometimes the presence of multinationals with a tradition for quality control helps. According to the Wall Street Journal, Nestlé, which uses Chinese milk in products sold almost entirely in China, knew about the unauthorized addition of protein, fat, preservatives and antibiotics to milk. According to Robin Tickle, a Nestlé spokesman, Nestlé uses more than 70 tests to assure the safety of Nestle milk. Yet regulators in Hong Kong and Taiwan found very low levels of melamine in some Nestlé milk products in September, just after Nestlé itself started testing for melamine.

China should take a leaf from the experience of Japan. I remember the era when I was a kid and “made in Japan” connotes shoddy workmanship and a less than desirable product even if the cheaper price was factored in. We looked at Toyota cars then the same way we look at Chinese made cars today.

It does not help China to allow all those substandard products being sold in Divisoria to even get here. When you have no less than this country’s Trade Secretary inspecting a mall in Divisoria on nationwide television and confiscating what he calls dangerous fire-prone Chinese-made Christmas lights, it can only add to the already much diminished public perception of Chinese products. Our Trade Secretary is just doing his duty. It is China that must prevent such products from even leaving their ports through legal or illegal means.

So, the onus is on the Chinese government to clean up the operations of its manufacturers, particularly its food manufacturers. And they should do this not just to protect foreign consumers but to protect their own citizens from being poisoned like all those thousands of poor Chinese babies.

If the Chinese can pull off that spectacular summer Olympics, they can pull off this dramatic change in the way they manufacture products. In fact, the good news is, change got a spectacular start worthy of China’s Olympic image. Over the weekend the Chinese government confiscated and destroyed more than 3,600 tons of animal feed tainted with melamine, closed 238 illegal feed makers in a series of nationwide sweeps that involved more than 369,000 government inspectors, according to the International Herald Tribune.

Working in China’s favor is its strong central government that once upon a time engineered a cultural revolution. They need a new cultural revolution now, a change in attitudes towards quality assurance. It is also the only way the Chinese economy can continue to work its way to being the world’s largest within our lifetimes.

Obamanomics

I got this e-mail from Vincent Ricasio, a New York based Pinoy.

I am surprised to read views such as those of Tordesillas see print in your column. Here is why his analysis is wrong:

a). The Keynesian multiplier is not only closer to one than three or four, but takes effect over a long period of time even during the boom phases of the business cycle. The circular flow mechanism will not enlarge fast enough to lift the economy from where it is stuck in now because of the influence of more and stronger factors on economic activity.

b). More evenly distributed consumption (which is what he implies) may prime demand up but in a developed economy the quality of its stimulus impact on aggregate demand is far, far less compared to targeted private investing or even deficit spending. This aspect of impact quality and timing is crucial because in developed economies the linkages are more and varied hence the need for precision. Keynesian equal impact multipliers is only for the Eco 101 textbooks.

c). But most of all, the current shock to the economy is not primarily caused by inflation or tax/quasi taxes on effective demand but by a liquidity drought triggered by debt deflation that causes banks to cut back on financing which in turn cause firms to cut employment. The chain of causation works via fear and not from structural reduction of demand. This is a “financial” or asset price, not demand triggered, deflation which is why structuralist explanations are not useful to the relevant timeframe of analysis. And this is far from a concern of just economists.

Understanding this diagnosis is central to what a redistributionist Obama presidency can and can not do to the US economy (and why his radical prescriptions may actually tip the world into a far deeper and more severe recession). The markets are already signaling their unease over the damage radical left will do in such crucial areas as taxation, cost of doing business and incentive towards risk taking that are far more crucial in stimulating economic activity in developed countries.

Those who moralize that greed caused this crisis (McCain among them… Boo C) are not only wrong about the actual chain of causation but do not quite understand the far greater collateral damage that interventionist policies did to the economy. More simply, those who think that an Obama victory will cause the world economy to recover may end up rudely shocked that it could actually make it worse. People should be careful about what they wish for because they may not like what they may get.

Dirty menu

My good friend Ed Isidro complained to me at the supermarket last weekend that some of the more recent jokes are not daring enough. So, to Ed, this is for you.

A waitress walks up to the table of three Japanese men at a New York City restaurant. When she gets to the table, the waitress notices that the three men are furiously titillating themselves.

She asks, “What the hell are you perverts doing?”

To which one of the men replied, “We all berry hungry”!

She responds, “But why are you whacking off?”

One of the three says, “Because menu say ‘first come, first served!’”

Boo Chanco’s e-mail address is [email protected]