[Vision2020] The Baby Formula Barometer

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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July 26, 2013
The Baby Formula Barometer By JOE
NOCERA<http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/joenocera/index.html>

Edward Wong’s terrific front-page article in The New York Times on
Friday<http://www.nytimes.com/2013/07/26/world/asia/chinas-search-for-infant-formula-goes-global.html>is
as good an encapsulation of the issues currently facing China and its
economy as anything you’re likely to read on the subject. As it tries to
move from a fast-growing, export-oriented, developing economy to a more
mature economy, it keeps bumping up against problems that could prevent it
from becoming the kind of economic power it so clearly longs to be. These
problems are almost entirely self-inflicted.

Wong’s article was about, of all things, infant formula. Specifically, it
was about how Chinese parents with connections and money scramble to buy
formula abroad, even though there is plenty available in China. They hire
people who will go into stores in Britain and elsewhere and buy formula for
them. Or they buy formula that has been smuggled in from Hong Kong — where
smuggling infant formula is now a serious crime. Mainly, Chinese parents
want to ensure that the formula they are feeding their babies has never
been touched by a Chinese company.

The reason is obvious. In 2008, six babies died and some 300,000 became ill
after their mothers fed them baby milk products that were tainted with the
chemical melamine <http://www.nytimes.com/2008/10/17/world/asia/17milk.html>.
Ever since, Chinese mothers haven’t trusted domestically made baby milk
products — starting with formula.

In fact, as I learned during my recent visit to China, Chinese consumers
don’t trust a lot of Chinese-made goods. In recent years, there have been
food scandals surrounding cooking
oil<http://www.nytimes.com/2010/04/01/world/asia/01shanghai.html>,
eggs <http://www.nytimes.com/2008/10/27/world/asia/27china.html> and meat,
for starters. A few months ago, according to Time
magazine<http://newsfeed.time.com/2013/05/06/40-tons-of-tainted-pork-allegedly-sold-in-china/>,
three people were caught processing pigs that had died of infectious
diseases. A few years ago, contamination of Chinese-produced heparin, the
blood-thinner, was linked to 81
deaths<http://www.nytimes.com/2008/04/22/health/policy/22fda.html>.
Chinese consumers don’t even favor Chinese cars — foreign models dominate
the market — because they fear that someone may have taken a shortcut (or
worse) that will cause the car to die.

So problem No. 1: At a time when China is trying to build a domestic
economy to match its export economy, there is a complete lack of faith in
Chinese companies. “It is not about branding,” an American businessman
living in Shanghai told me (he feared consequences to his business if he
let me use his name). Rather, he said, there is a sense among consumers
that no matter what the industry, too many Chinese businesspeople are
willing to scam their own customers to make a buck.

With corner-cutting deeply ingrained as a Chinese business practice, it’s
really up to the government to change that ethos through regulation and
enforcement. But while the central government is more than happy to pass
nice-sounding laws, there is virtually no enforcement, and no real culture
of regulation either. That’s problem No. 2. Provincial governments that are
supposed to oversee, say, the food supply, are often either in on the scam,
or look the other way because they fear that a crackdown might impede
economic growth. And officials are evaluated almost exclusively on the
basis of growth. Problem No. 3: bad incentives.

And if your car does break down in six months because a supplier sold
faulty parts — or your child dies from tainted infant formula? There’s not
a thing you can do. Yes, when a big scandal breaks, some crooks go to
prison<http://www.cnn.com/2009/WORLD/asiapcf/01/22/china.tainted.milk/>,
but even the biggest scandals don’t lead to systematic change. Nor is there
any way to seek recompense in the courts; in the West, that has long served
to help keep companies on the straight and narrow. The lack of a real rule
of law is problem No. 4.

As Wong notes in his article, the government is now investigating foreign
companies selling infant formula in China for price-fixing. (Since the
scandal, the price of a can of foreign formula has risen by 30 percent.)
Whether there is price-fixing or not — market forces are a more likely
culprit — this response is exactly the problem: instead of enforcing
regulations that would give consumers confidence in their own country’s
products, the government instead is finding ways to make life more
difficult for those who make products its citizens want.

In the United States, of course, it has become religion among conservatives
to denounce regulation, saying it stifles business and hinders economic
growth. But consider: At the turn of the last century, America was as
riddled with scam artists as China is today. Snake oil salesmen — literally
— abounded. Food safety was a huge issue. In 1906, however, Upton Sinclair
published “The Jungle <http://www.gutenberg.org/files/140/140-h/140-h.htm>,”
his exposé-novel about the meatpacking industry. That book, pointed out
Stanley Lubman, a longtime expert in Chinese law, in a recent blog
post<http://blogs.wsj.com/chinarealtime/2013/05/21/why-americans-should-worry-about-chinas-food-safety-problems/>in
The Wall Street Journal, is what propelled Theodore Roosevelt to
propose
the Food and Drug Administration. Which, in turn, reformed meat-processing
— among many other things — and gave consumers confidence in the food they
ate and the products they bought.

That’s what China needs now. Infant formula just scratches the surface.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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