How China can lose the Beijing Olympics

Could it be corporate corruption, rather than political repression, that tarnishes the success of the Beijing Olympics?

When China campaigned to host the 2008 Games, the memories of the Tiananmen Square massacre and the image of a man standing alone in front of a line of tanks haunted its bid. Now, a year before the Olympics open in Beijing, it is concerns about safety standards and the recall of nearly 10 million potentially toxic Polly Pocket dolls that threatens the reputation of China.

The mass recall of Mattel toys covered with lead paint, coming on the heels of scares about toothpaste laced with industrial solvents, fake pharmaceuticals, tainted pet food and drug-contaminated seafood, could all too easily prompt Americans to shut its ports to Chinese goods. Senator Dick Durbin, a senior Democrat, has already called for the temporary detention and inspection of all children’s products from China that might contain any paint at all.

The US Administration knows that economically, as well as strategically, it has as much to lose from a trade war as China. Instead, it is up to Washington and the West to impress upon China the responsibilities of companies that operate in the international market. Ever since the US amended the Consumer Product Safety Act in 1981, America and its trading partners have essentially operated by a system of self-regulation. Companies not only stand and fall by the quality of their goods, but are liable for the safety of their products.

The quality control problem in corporate China is pervasive. The authorities in Beijing say that one fifth of products fail to meet quality standards. The evidence in recent weeks suggests the problems may be even more widespread. In addition to the product recalls, a bridge nearing the end of construction in Hunan province collapsed this week, killing 34 people.

China has reacted to these regulatory and corporate failures with dramatic ferocity. Last month, the Government executed the former head of the State Food and Drug Administration for dereliction of duty and for taking bribes. It has responded to the collapse of the Hunan bridge by launching a police man-hunt for the project supervisor.

But scalps and scapegoats will not, alone, change the corporate culture. For China to maintain its export-led boom and to ensure that its cherished 2008 Olympics are not marred by faulty construction or flawed products, state-owned enterprises need to embrace greater transparency, accountability and individual responsibility.

This may represent a serious challenge to the one party state, but it is the price of participation in the world market.

by James Harding The Times Online 16 August 2007