China is getting all het up about product recalls in China. In an effort to show the Chinese people that shoddy goods produced domestically aren’t limited to domestically produced chopsticks, napkins, cooking oil...the air, reports of imported luxury goods being recalled over safety fears are turning in headline news.
After a humiliating scandal when it was discovered that farmers had been adding melamine to batches of milk formula in 2008, eight babies died and some 300,000 were left seriously ill. Milk tamperers struck again in 2011, and then again 2012 after dangerously high levels of the fungal poison aflotoxin was discovered in the formula. Last year another company issued a product recall after unacceptable levels of mercury were found in it’s milk powder.
So it’s no surprise that Chinese parents and grandparents, who are often the ones who care for young children in the family, are wary of buy Chinese baby milk. Chinese consumers switched in their thousands to foreign brands, causing product shortages in Hong Kong and forcing the government to impose strict limits on how much consumers could bring into the country. With profits of Chinese milk producers in the toilet, some kind of PR offensive was needed, if not to encourage the idea that foreign products aren’t as good (the prices of foreign branded milk powder are rising, despite global supplies increasing) as domestically produced formula, then high profile recalls will serve to remind people that milk powder bought in Hong Kong is just a susceptible to product tampering as that produced in mainland China.
The first attempt to demonize foreign companies came in early July with The National Development and Reform Commission launching an anti-trust probe to investigate the possibility of price fixing. After the investigation was announced, Nestle and Danone slashed their prices by 20%. Despite the high prices, sales remained strong simply because Chinese consumers don’t trust the Chinese companies to make products safe for human consumption. Speaking to the South China Morning Post, Wendy Ma, a new mother in Guangzhou said "It's HK$210, I don't know how much it costs on the mainland. I didn't even bother to check. It's not an option for me to consider. Most mothers who I know have done their research either buy from Hong Kong or go to the trouble of getting shopping agents from overseas to source infant formula.”
In 2008, when the melamine scandal was uncovered, the government, embarrassed by the number of deaths involved decided that "because it is not an infectious disease, so it's not absolutely necessary for us to announce it to the public.". And while it’s been left to Fonterra to explain why it took a year to report that contamination of it’s milk, kidney stones in infants fed Chinese brands were found up to two years before the whistle was blown, and then only after several months did the story break in the newspapers.
Sanlu itself received complaints from parents of sick children as early as December 2007, but no tests were carried out until much later in June 2008. Three months later, the Chinese authorities were later alerted by the New Zealand government. Additionally, the company offered search engine giant Baidu a three million yuan to play down negative coverage of the scandal. Not something that their PR company Teller International had in mind when they suggested “cooperation” with Internet news outlets.
While the health concerns are genuine, and getting news out to people who may be affected by the taints, the signal to noise ration in coverage of these types of stories in the Chinese soon descends into parody. Bellicose editorials and selective amnesia seek to give the slightest slip up by a foreign company or government a pro-Chinese spin. Using the product recall to try to win back consumers to buying Chinese milk powder, despite the terrible track record, a People’s Daily editorial warned consumers not to “blindly trust” foreign products. Obviously, it’s better to wait and see if infants will be struck down with aflotoxin poisoning or melamine overdoses before consumers distrust a food company. The transparent attempts to coax consumers back to Chinese products don’t go down well on Weibo: "Model Brother II" said: "Foreign milk products get contaminated due to negligence, which is equivalent to 'manslaughter'. Domestic producers intentionally add melamine to milk powder, which is 'intentional murder'." Some went further suggesting that the pre-emptive recall showed Fonterra’s sense of corporate responsibility, especially when compared to the efforts of Sanlu, which produced the melamine laced milk in 2008.
Aggressive PR campaigns against non-Chinese companies that outsell and outperform their Chinese rivals aren’t new inventions. State television has used it’s “Consumer Rights Day Gala” to single out companies that have done particularly well in the mainland, and have left Chinese companies with shelves full of stock and empty bank account. Apple and Volkswagen have both run afoul of CCTV “investigations”. Small problems concerning warranties and dodgy gearboxes were spun out into the old story of foreign companies trying to pass off inferior products to gullible Chinese consumers.
The whole thing fell apart when it became apparent that Weibo users of influential accounts had been bribed by producers of the program. Although participants claimed that their accounts had been hacked, the fact that the feckless tweeters hadn’t edited out CCTV’s instructions in the messages that they wanted to go out sealed the fate of the microbloggers. Ironically, the show that promoted itself as protecting consumer trust had irreversibly damaged it’s own reputation with Chinese consumers. Sales of Apple products don’t appear to have suffered any because of the “expose”, and some suggest that the tech company may have actually benefited from the coverage.
Luxury cars, a favorite of China’s new middle class are also a target for China’s questionable General Administration of Quality Supervision, Inspection and Quarantine. This month, BMW floated into the governments crosshairs, forced this week to recall 140,000 vehicles because of a faulty seal that could cause water corrosion. “In terms of financial impact it’s basically zero,” said Robin Zhu, automotive analyst at Bernstein Research. “In terms of brand damage it’s also negligible.”
Leveraging minor faults in the final product and BMW’s “environmental standards” (the joke of being that the government is accusing a foreign car brand of contributing to the infamous air quality in China), an application by BMW and it’s Chinese partner Brilliance to double production at their plant in Shenyang was denied. Again, the reaction on the Chinese Internet boards has been mostly praise, since the company is seen as being responsible in it’s efforts to provide safe products. “At least a large corporation like this is willing to put customer’s safety first. I’ve never heard of a recall initiated by a local auto manufacturer, let alone a large-scale recall like this,” wrote one blogger. The ghosts of Sanlu have yet to be laid to rest.
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