Can China Reform Itself?

July 8, 2007 The World Can China Reform Itself? By JOSEPH KAHN BEIJING PHONY fertilizer destroys crops. Stores shelves are filled with deodorized rotten eggs, and chemical glucose is passed off as honey. Exports slump when European regulators find dangerous bacteria in packaged meat. More product safety scandals in China? Not this time. These quality problems prompted a sluggish United States government to tighten food and drug regulation 101 years ago, when President Theodore Roosevelt signed the act that created the Food and Drug Administration. Like America’s industrializing economy a century ago, China’s is powered by zealous entrepreneurs who sometimes act like pirates. Both countries suffered epidemics of fatal fakes, and both have had regulators who were too inept, corrupt or hamstrung to do much about it. The question now is whether Chinese factories, caught exporting poisonous pharmaceutical ingredients, filthy shellfish, bogus pet food and faulty tires, can react in time to head off more damage to their reputation. Or, to put it another way, are the latest incidents enough to push China toward its own Progressive Era? The answer, say people who have studied the country’s regulatory system, is a cautious yes. But first, they say, Beijing must take a fresh approach to inspecting and policing its often unruly economy. Chinese exporters sold nearly $1 trillion worth of goods overseas last year. Fakes and shoddy goods, by most measures, made up no more than a tiny fraction of that total. Yet the string of product safety scandals reflects a persistent roguish undercurrent in the Chinese economy that extensive media coverage, new laws and tougher enforcement have not eliminated. Teddy Roosevelt’s government had to overcome ideological opposition to regulating private-sector commerce. China has a different political challenge: Its authoritarian government, though under the control of one party, has struggled to develop a modern, unified regulatory system that can supervise a dynamic market economy. “Competition inside our bureaucracy has led to a diffusion of power and a tendency to shirk responsibility,” says Mao Shoulong, a public policy expert at People’s University in Beijing. “Cracking down on individual criminals doesn’t solve the problem. We need to fix the whole system.” Safety lapses are a serious side effect of China’s gradual and still incomplete efforts to separate politics and business. To spur economic growth in the 1980s, top leaders gave local-level officials more power. The goal was to undercut socialist conservatives in the central government who exercised tight controls. Regulatory power was also scattered. Growth surged. Entrepreneurs, foreign investors and peasant farmers assumed a dominant role in production. But safety, as well as labor and environmental standards, fell by the wayside. Scores of people died after ingesting bathtub baijiu, or rice wine, that substituted cheap industrial-grade alcohol for the real stuff. Condiments used as spices for hot-pot cooking contained paraffin wax. Vermicelli noodles carried a cancer-causing agent, as did a popular red dye, called Sudan Red, that was used by Kentucky Fried Chicken and Heinz, among other companies. Hundreds of parents in Liaoning Province were so frustrated by the local government’s response to a spate of food poisonings at a school cafeteria in 2003 that they blockaded the local railroad. Perhaps the most sensational case occurred in 2004, when small factories in central China produced cheap infant milk formula that lacked protein. Some 50 infants in Anhui Province died from malnutrition after their parents and some doctors mistook their symptoms — bloated faces and hands — as a sign of overfeeding. Since then, regulatory efforts have been strengthened, but often with limited results. As many as 17 bureaucracies have overlapping responsibilities in just the food and drug sphere, and they jealously guard their power. The Ministry of Health, the Ministry of Agriculture, the State Administration of Industry and Commerce, and the General Administration of Quality Supervision, Inspection and Quarantine have all vied for monitoring roles. The reason: They wanted to collect license fees and fines to supplement their measly budgets. No less significantly, inspectors and their bosses could collect bribes in exchange for favors. “It came down to turf warfare between departments,” said Roger Skinner, a retired British regulator who advised the Chinese government on improving food safety on behalf of the World Health Organization. “If they can’t enforce, they will lose revenue.” Realizing they had created a muddle of competing bureaucracies, top leaders in 2003 formed the State Food and Drug Administration, named after its American counterpart, that on paper had “super-ministerial authority” to coordinate all the others that monitored the politically sensitive food and drug sphere. The agency quickly fell victim to infighting, however, and lost clout in 2005, when its first director, Zheng Xiaoyu, was forced out. He was later convicted of taking bribes for speeding approval of new drugs. After the latest string of safety scandals erupted, Mr. Zheng was sentenced to death. Blurred lines of responsibility and weak investigative powers partly explain why Chinese regulators gave little help to their American counterparts in the most fatal example of China’s safety problems reaching foreign shores. In 1997 and again last year, the Americans sought information about why Chinese chemical companies had exported counterfeit glycerin, containing poisonous diethylene glycol, that ended up in medical products in Haiti and Panama. Scores of people who consumed the products in both countries died. The diethylene glycol was made in Chinese chemical factories, but ended up in pharmaceutical products. That meant it fell into a regulatory void. No agency wanted to take control. “You get buck-passing, frankly, between ministries,” said Mr. Skinner, the British regulator. “One ministry says, ‘It wasn’t my job to do that, it was this other ministry.’ ” Even so, many experts argue that the capitalist excesses that have thrived during China’s economic transition have already sparked corrective action, not totally unlike the Progressive Era changes in the United States. President Hu Jintao has pushed through a series of measures under the slogan of “scientific development” that aim to strengthen central regulators and economic planners, reduce abuses of low-wage workers, and protect the degraded environment. He has met plenty of resistance, and it remains unclear how much he will pull back from China’s fast-growth development model. Though some political and corporate forces argue that China needs to grow richer before it can address labor and environmental problems, there are few vested interests that defend the rights of fly-by-night factories to inject poison into medicine or leave the protein out of infant formula. With China’s reputation having taken a hit in the United States, resistance to tightening standards seems likely to fade. “I think Chinese leaders are deeply alarmed,” said Dali Yang, a Chinese governance expert at the East Asian Institute in Singapore. “They will not let a tiny percentage of bad exports damage their reputation.” Mr. Yang said that big Chinese cities have already demonstrated that they can do a better job monitoring food and drug safety than less developed counties and rural areas. Retail and restaurant chains and brand-name manufacturers have also gained market share versus small-scale operations, partly because Chinese consumers want to avoid fake or dangerous goods. The state-run media has been given unusual latitude to expose shoddy goods. One of the most popular shows on China Central Television, “Weekly Quality Report,” investigates accidents, poisonings and cheap fakes. Recent topics include defective motorcycle helmets, a faux rabies vaccine, faulty tires and toxic food additives. Even the United States F.D.A., which China considers a model of regulatory might, has issues that might sound familiar in Beijing. Its bureaucrats have complained that tight budgets and competition with 11 other federal regulatory agencies have made it harder to police the food supply. And while that agency was created in the regulatory rush of 1906, it took more than 55 years, until the Kennedy administration, for the F.D.A. to acquire the powers it sought to ensure a safe drug supply. “I’d be surprised,” Mr. Yang said, “if it takes China that long.”