Product Liability

“Made in China” often means “Buyer Beware”

Toys with lead paint, contaminated food, toxic drywall, defective all-terrain vehicles – these are just some of the Chinese exports that have spawned massive safety recalls and personal injury lawsuits in the last couple of years. In 2007, made-in-China products accounted for more than 82% of all U.S. consumer product recalls. Assuming that U.S.-China trade relations remain normal, what will the future of the American marketplace look like in 5 or 10 years? Will it be rife with all sorts of defective and dangerous imports or will Chinese manufacturers eventually embrace what it means to make a “quality” product?

The University of Southern California’s US-China Institute provides some answers with its recently published analysis titled “Buying ‘Made in China,’” which takes a close look at some of the cultural and political factors that cause and contribute to the influx of dangerous products to the American market.

To understand the scope of the problem, consider that Chinese imports to the U.S. quadrupled from 1998 to 2007. These days, 75% of all imports sold in the U.S. have been made in China, and the percentage continues to rise steadily. In 2008 alone, $338 billion of Chinese goods entered the United States.

According to the USC report, Chinese manufacturers typically hide their real operations from the eyes of foreign businessmen, showing only “plants maintained to give Western buyers the impression that their goods were made under safe, healthy, legal conditions that conformed to the buyers’ codes of conduct.”

Alexandra Harney, author of The China Price: The True Cost of Chinese Competitive Advantage, said that products are not actually manufactured in these “for-show-only” plants but in shadow plants.

“In these factories, workers are not paid the legal wage, they have no insurance, and they work far longer hours than China’s law or the companies’ codes of conduct mandate,” Harney explains. “Because the buyers never see the shadow factories, they have no idea whether substandard materials or ingredients are being used on the production lines there.”

Paul Midler, whose experiences as a businessman in China compelled him to write the book Poorly Made in China, said that factory owners often make unilateral changes to specifications without checking with their customers first, which leads to product failure. Moreover, Chinese manufacturers have become much more adept at concealing their violations than they were just a couple of years ago.

After working with dozens of companies that rely on Chinese production lines, Midler said that he believes all the defective products entering the U.S. are the result of what he called “quality fade,” which is “the deliberate and secret habit of widening profit margins through a reduction in the quality of materials.”

“Very often in China, quality is not seen as something that can help a company build up its reputation and expand market share,” Midler explains. “Very often quality is seen as a barrier to profitability.”

Midler also explained that Chinese manufacturers don’t have to worry about reputational damages like American companies do because suppliers are almost always “hidden from the marketplace.”

He also added that “In the U.S., the threat of litigation or brand damage through media exposure puts pressure on companies to monitor product safety more closely.” In China, he explained, the “vast number of companies makes it harder for the Chinese government to monitor them adequately. Farmers and businessmen may not always understand the consequences of the chemicals they are adding to their products to improve productivity or lower costs.”

Midler also said in addition to the recalls that the CPSC and a number of private firms announce, there are many products that slip by. “For every single major quality fiasco, the sort that would make the papers, there were probably hundreds of smaller disasters that never got any publicity at all,” Midler explains in his book.