Rescuing China’s Supply Chain:
An Opportunity for Collaboration, Not Confrontation

Background

Why have recent product recalls and news stories of tainted Chinese toys, toothpaste, pet food and tires created such a stir? The toll in human health is a miniscule fraction of the impact of nearly 100 million packs of foreign cigarettes sold in China each year. Perhaps Chinese product safety concerns have tapped deeper anxieties about China’s emergence as a great power.

China’s economic growth, while directly benefiting the West, has also been perceived as threatening employment in the developed world’s manufacturing sector because of unfair competition. Critics allege that China derives its competitive economic advantage by not enforcing environmental regulations, and by allowing unfair and exploitative labor practices. Combine this perception with China’s growing energy demands and competition for fossil fuels in the global marketplace and China becomes more threatening in the eyes of the West. Focus on China’s growing contribution to climate change, its military growth, etc. and one senses an emerging confrontation.

Unsafe Chinese products are indeed a real public health threat. But they are also an excuse for labor organizations, industry trade protection groups, human rights groups, and environmental organizations to lobby for restricting imports of Chinese products by invoking “objective” health concerns that the WTO might accept as not being a trade barrier.

But even if import barriers were erected, they would at best be temporary. And they would not address fundamental issues that Chinese and global leaders want to see resolved. There is more to be gained by collaboration at this moment than by confrontation. So what is the path forward?

Collaborative Solutions

First it is essential to understand that “the world’s factory”, China, is not a monolithic enterprise. This young market economy is composed of an astounding variety of businesses large and small. Unregulated pollution spewing mega-factories and dangerous coal mines do exist, in too great numbers. However, there are also many small and medium sized enterprises recently founded by former rural village residents who have created businesses to advance their own prosperity and to increase the wealth of their kin and neighbors. These socially responsible businesses present some of the most remarkable efforts we have witnessed in the field of socially and environmentally sustainable businesses. The majority of Chinese businesses probably fall between these two extremes. Their mode of operation reflects a struggle between traditional community- helping social values and marketplace pressures focused exclusively on price competition. China’s business culture has not yet solidified. Policy makers in and outside of China, trade partners, and global civil society organizations need to engage China’s enterprises in a manner that distinguishes between different categories of businesses, builds on opportunities for confirmation and collaboration with model businesses, and confronts problematic partners with necessary sanctions.

Rather than restricting whole categories of Chinese products and penalizing the majority of honorable enterprises struggling to provide cost effective quality goods, we need to selectively screen and monitor individual producers in supply chains. Rather than condemning all Chinese businesses as profit seeking to the exclusion of environmental and labor standards, we need to identify, recognize, and support those who are models of good corporate citizenship. This support includes providing them with adequate economic incentives to do the job right, including fair compensation for consistent compliance with safety, social, and environmental responsibility standards.

International organizations need to assist China in creating credible certified product labels and brand names that will allow consumers to differentiate the “Made in China” brand name. Re-branding high quality value-added products, such as organic foods, would be good for China’s environment. It would also be beneficial for the global environment. Such a “management” transfer is a business opportunity for small states and countries that may not have the capacity to engage in technology transfer with China. For example, ECOLOGIA’s organizational headquarters is in Vermont, the second smallest state in the United States. However, this small state has the largest Businesses for Social Responsibility Network of any state in the USA. In part this is due to the fact that Vermont is an incubator for socially and environmentally sustainable businesses. This process has succeeded to the degree that products bearing a “Made in Vermont” label are said to have a ten percent price premium. The knowledge of producing and marketing such value-added products is exactly what China’s own small and medium sized enterprises need.

Rather than putting up a monolithic trade wall, we recommend better filters. Filters must be more than just higher standards on paper. Even enhanced regulatory oversight by itself will be inadequate. Neither the United States nor Chinese government has a demonstrated capability to test all or most exported Chinese products. There are alternatives to massive government regulatory bureaucracy that can be implemented quickly and in a cost effective manner.

To provide feedback, please contact Randy Kritkausky at rkritkausky@ecologia.org