"Food" for thought

Astronaut Zhai is scheduled to walk in space today, after Senzhou VII was launched successfully yesterday evening. If Zhai suceeds, it will be "one small step for him and one big leap for the 1.3 billion men". However, Melamine, a chemical which is hardly known by ordinary people, apparently has stolen the limelight from Zhai and his colleagues.

The industrial chemical was added to milk formula to boost its apparent protein content. To date, more than 60 thousands children have been sickened with kidney stone and acute kidney failure, which caused a public uproar last week. Before the mischief was made known, nobody would expect the poisonous industrial chemical can be found in food. Once again, the Chinese have impressed the world with their creativity, after the glamorous opening ceremony of Beijing Olympics.

China's economic model is widely lauded by many well-known economists, including Fareed Zakaria and Michael Backman. For the past few decades, China has been very successful in attracting foreign direct investment(FDI) with its well-built infrastructure and low labour cost. Total numbers of Chinese climbing over the poverty line is marvelous. Unlike Japan, China opens up her 1.3 billion consumer markets to foreign companies, and at the same time promoting local brands both internally and externally. The increased global dependence on Chinese market then allows the country to exert more leverage in the world.

However, China's leadership seems incapable to keep pace with the economic development which is at a breakneck speed.

Many of the so-called national branded, such as Wahaha Group and the infamous Sanlu Corp., are previously state-owned and state-controlled. Despite a series of privatisation which took place in 1980s and 1990s, the state still holds a significant amount of stake in many of these companies. Operating under the state's umbrella, they see little incentive to improve their competitiveness. Sometimes, politicians' vested interest in the companies can be detrimental. A few years ago, for instance, Qingdao, a century's old local beer manufacturer, lamented about losing revenues to its rivals. Instead of an overhaul to get rid of some very unprofitable operations such as cap production, it forcefully acquired its small competitors with the help of the state and local warlords. As such, Qingdao becomes the biggest mismanaged local beer manufacturer in the country.

Therefore, when foreign companies come in, bringing along with them huge capital and much more efficient management systems, these local companies find themselves losing their edges. In order to survive, they have to keep their price low, which also means low profit margin.

Nevertheless, keeping the price low becomes more difficult as a result of skyrocketed properties' prices, highly inflated cost of goods and rising labour cost. Fraudulence hence is used as a quick solution. In order to cut cost, the companies have to reduce number of defects in their product. It is achieved, however, not by a better manufacturing process but by a more lenient quality assessment."QC" stickers therefore become meaningless while after-sales services are virtually non-existent. When it comes to governmental testing, money is changed hand to get the products pass. The practice is further facilitated by rampant corruption in China.

In the recent scandal, Sanlu Corp., the protagonist of the whole story, forced its suppliers to sell their milk at a low price so that it can compete with foreign brands. The suppliers who saw decreasing profit margin, hence resort to mixing water with their milk, while also adding melamine to make the protein content looked higher. When complaints were received, instead of extensive investigation to solve the problem, the company diligently swept the information under its directors' carpet, untill the central government was informed by New Zealand's premier and the incident was made public subsequently. It is obvious that only with state's enormous influence and money could such a big broom be made.

Confidence in Chinese products crisis ensued, even in China. Fonterra had sold much of its stake in Sanlu. The company said that it will not give up on China market but no where in the statement did it mention whether it will continue to invest in food production in China. It seems that neither consumers nor investors will regain confidence any time soon, especially when 19 countries have issued bans on milk-contained products from China. It is also almost certain that the top local brand, Sanlu, will not survive for the next fiscal year without state's interference again.

The culprits are likely to face death penalty to quench the public anger. However, innocent lives have been killed. It is really the time for the state to let go of its hands so that the leadership can focus on dealing with hyper-inflation, rampant corruption and food safety.

The environmentalist, Rod Watson, once says that

"if you jump out of an 80-story building, from the 80th floor, for 79 stories you can think you're flying. It's just the sudden stop at the end that gets you."

Here I will quote out of context. China jumped out from the building in late 1970s, she has no choice but to be fully-fledged before she comes to the sudden stop at the end. However, at this rate, China might just hit the ground eventually.