China Ramps up War on Poor Product Quality

Every year, March 15 is a day of great trepidation for both foreign and domestic brands in China. In celebration of global consumer rights day, which falls on March 15, the state-run China Central Television (CCTV) annual consumer rights show exposes companies selling what it deems as inferior products or those that are perceived as abusing consumers' rights. In previous years the show has taken aim at major brands such as Apple and Nike. Last year, it targeted Volkswagen for alleged engine defects in its Touareg SUV model, resulting in public apologies from the German carmaker.

This year, there were no foreign brands in its sights. The focus was on how some Chinese factories were turning medical waste such as plastic syringes into toys and bags; the health risks from smoking e-cigarettes; and a local company that allegedly made spicy snacks – popular with Chinese children – in unsanitary conditions, prompting online retailers such as Taobao and JD.com to immediately remove the products made by the accused brands.

It was no surprise, therefore, that the State Administration for Market Regulation, or SAMR, chose the date to announce results of its random quality check on 30 types of products carried out at the end of last year. Of the 2,786 batches of checked goods, ranging from vacuum cleaners to building materials, 12.5 percent were found substandard. Microwave ovens, food processing machines such as juicers, and printers were of the best quality, with no inferior products found. Ten categories, including pens, stuffed toys, projectors and copper pipes, saw over 90 percent of products as above the minimum quality standards. Stainless steel gas hoses and cold-rolled ribbed bars were found to have the poorest quality, with a reject rate of 46.7 percent. The quality inspection covered more than 2,400 producers.

Tian Shihong, deputy head of the regulator also chose the occasion to announce that the SAMR will launch new long-term supervisory measures to combat product quality problems. Efforts will be made to strengthen nationwide supervision and inspection of raw material through comprehensively implementing random checks to enhance regulation efficiency. Furthermore, Tian said the administration will increase the frequency of inspection of companies with records of producing inferior-quality products.

Since the tragic scandal of China's melamine-laced baby formula in 2008 in which six infants died, the Chinese administration has wrestled with reassuring its citizens on the safety of domestic products, and its competence to effectively police them. Foreign products, viewed as having more reliable safety regimes, have benefited massively as a result.

Last October, a Chinese vaccine maker, Changchun Changsheng was fined Rmb9.1 billion, or $1.8 billion, after the authorities found it had fabricated data for over 110,000 rabies vaccines. It was China's third vaccine scandal in recent years. In response Zhang Yesui, spokesman for the National People's Congress, said at a press conference during this year's Two Sessions, that China will accelerate a draft vaccine management law and an amendment to its Drug Administration Law. The draft laws will propose more stringent inspections of vaccine production, a system that can trace the entire supply chain, as well as much tougher penalties for those who produce or sell counterfeit or sub-par drugs

The challenge for effective control has been compounded in recent years with the explosive growth in e-commerce. Apart from sales through the enormous online malls such as Taobao or JD.com, there has also been a massive growth in independent vendors or daigou who are personal shoppers that purchase quality and luxury goods cheaper overseas, and then sell them for a profit to customers in China through social media platforms such as Wechat. The business is substantial. According to Sara Hsu, Assistant Professor of Economics at the State University of New York, some estimates put the sales through these channels at close to $100 billion annually.

To counter the sale of fake or counterfeit goods, a law was passed by the Standing Committee of the National People's Congress last August, and took effect on January 2019. The law requires all sellers to have officially registered in order to continue operating their online businesses, and both platforms and sellers are now held responsible for violations of intellectual property rights. So far, compliance with the new law is still patchy.

“In general, the law is meant to protect consumers from purchasing poor quality goods and services online,” says Hsu. “Daigou have found it difficult to operate without costly licenses and have resorted to selling their products over social media by using drawings rather than photos of the goods, and by substituting code words for certain products in order to avoid detection,” she says.

As new, more muscular regulations and inspection regimes are introduced, their success will depend on their effective enforcement. China has increasingly enforced consumer protection rules, according Hsu. This is an important factor in the administration's drive to tilt China more towards a consumption-based economy.

Part of the challenge is getting Chinese consumers to believe it is worth their while to complain. To encourage consumer complaints, on March 15, 2017, the State Administration for Industry and Commerce (SAIC) launched an updated web-based national platform to better handle consumer complaints and consultations regarding product quality.

According to SAIC data, it appears to be working. More than 8.98 million complaints were lodged with China's consumer rights watchdogs in 2017, up 11.2 percent from the previous year. Most importantly for out-of-pocket consumers, the authorities managed to recover Rmb3.57 billion in economic losses for deceived consumers, almost double the figure from the previous year.