Roger Bate is the Legatum Fellow at AEI.
Congress should investigate the increasing danger of Chinese food and drug imports so that remedies can be found to lower risks
Yet another food scandal is gripping China. On Monday tons of melamine-contaminated milk products were seized from warehouses in Chongqing, a vast municipal area with 35 million inhabitants. The tainted milk powder would have made tons of pastry and ice-cream; fortunately most of it was caught before any serious damage occurred.
But according to London’s Daily Telegraph newspaper, Chongqing is awash in fraudulent foodstuffs: “some 917 cases were already under investigation in Chongqing including the use of the textile dye, Rhodamine B, in broad bean paste; the discovery of formalin, an industrial preserving and clotting agent, in the city’s famed hotpot restaurants and industrial carbon dioxide to carbonate beer."
The milk problem is the largest concern however and it is the tenth serious food scandal in just the past few years. It provides more evidence of the inability of China’s officials, corporations and consumers to prevent lethal production.
Beijing knows it has a problem and this week, 7,900 Chongqing police raided 600 premises across the city suspected of producing illegal or fake food and pharmaceuticals. Sources say this action was a bid to restore confidence in the health authorities. To coincide with the raids, city officials announced a 100-day crackdown on illicit activity, not unlike the one that preceded the Olympics in 2008 – the last time China was gripped by the fear of melamine in its milk products.
In 2008, three babies died and 300,000 others were sickened by melamine-tainted milk. Chinese authorities initially ignored the problem of contaminated milk, then tried to cover it up once the story broke, and finally over reacted by executing two executives it identified as being guilty.
This was probably the final straw in destroying the already fragile public trust in the government’s ability to keep food and drug supply safe. Even when Beijing is right it is ignored: government pleas to a nervous population to stop buying useless products, which were being touted as unnecessary remedies for radiation from Japan’s stricken Fukushima nuclear power plant, had no effect.
Even though high level officials have demanded a robust response to the latest milk problem, few Chinese think much will be done. Part of this is because the rhetoric remains the same as in 2008. Vice-Premier Li Keqiang, says his committee on food safety will ensure “a firm attitude, iron hand and more effort” in addressing safety concerns, and reiterated that this included the use of capital punishment. But with the threat of death looming over Chinese company directors, contamination continues – the ultimate sanction means little if enforcement is arbitrary and often pathetic.
At fault is not the occasional bad corporate apple, but the entire Chinese Communist business system. It encourages corner cutting, provides no substantial reward for integrity, doesn’t protect brands (domestic or foreign), so consumers have no meaningful market signals to respond to. After all, if brands are faked the consumer cannot rely on switching from one brand to another in the search for safety. Even when harmed, consumers have little recourse since China has no real rule of law. And capricious law enforcement means that the very best candidates are not attracted to government roles because they may be subject to the same arbitrary decision making.
Yet over the past decade, while Chinese people have progressively lost trust in their government’s oversight of food and drug production, westerners have imported more food and vastly more pharmaceutical ingredients from China than before. In 2002 US imported $1.9 billion in food and drug products from China, last year it was $6.85 billion.
There are good reasons for this, China’s ingredients are cheaper than anywhere else on the planet and most are perfectly fine. Our drugs would be a lot more expensive if we didn’t buy from China.
Western buyers are perhaps naïve in buying cheap Chinese products, implicitly assuming that cost savings are made through lower labor costs and large economies of scale, not through systemic corner cutting. But few Chinese manufacturers have embraced the culture of safety. Western company executives are used to ticking boxes, and complying with regulations that sometimes have little meaning. For example, a western pharmaceutical manufacturer must buy ingredients from an audited and approved site of good manufacturing practice because that is what the rules state (and it also makes sense). But company executives continue to do so even when that approved site might well be getting its ingredients from a shoddy unapproved unhygienic plant down the road (this certainly doesn’t make sense). This is such a major systemic problem in pharmaceutical production in China that maybe as much as a third of ingredients going to western companies come from unknown and hence probably non-approved locations. Last there is a fiction that the Chinese food and drug authority (SFDA) can actively regulate the market.
The SFDA is still reeling from the execution of its previous director for taking bribes from companies to overlook their quality failings. SFDA is trying to control a system which breeds corruption and has to operate over vast areas with insufficient manpower – partly because the pharmaceutical industry is growing faster than China can train inspectors. So it simply cannot oversee most of the industry, never mind the broader legal and political impediments. The US FDA has established an office in China and is increasing investigations of the plants that export to US, but at best it can only assess each site once every 13 years.
With little realistic oversight, and more importantly, little ethos of business integrity in China, a major tragedy in the US from a Chinese export is likely in the near future. And it will probably be far greater than the calamity that killed 149 Americans with contaminated heparin, a blood thinning drug, imported from China. The heparin was quality checked when it reached the US manufacturer, but the contamination was impossible to detect with the tests which were then recommended. The fraudsters could have been very lucky, but it seems more likely they chose a cunning and sophisticated method deliberately to cheat the system. The problem was only suspected after people started to die.
Yet, even after the heparin disaster, US interests imported $289 million more Chinese pharmaceutical ingredients in 2010 than in 2008. And we are already seeing more product recalls, I suspect as a result. But someday soon, the price of another disaster may be too high for American politicians to ignore.
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