The Financial Times published an interesting article (“An accident shows how China treats consumers“) that describes the view of Chinese state-owned enterprises (SOEs) regarding the export of unsafe products. They represent a large chunk of China’s economy, and many have been exporting for decades.

The article tells the story of an SOE whose products (firewords) nearly killed a US citizen. When sued in an American court, its representatives didn’t even deny the facts, but tried to show that the trial was inappropriate. It looks like they didn’t care about the accident. What was the motivation of its managers?

“These [top management jobs] are very political positions,” says Greg Anderson, a former financial executive with broker Charles Schwab who now studies Chinese business at the University of California at Los Angeles. The goals of Chinese state-owned companies’ chief executives are simple, he says: to “get bigger and ensure that nothing bad happens”. Promotion depends on them; anything less spells relegation.

Very true. They mainly have to create (or maintain) jobs, to avoid social unrest.

But are they particularly careful about quality these days, after the recent scandals? Yes, says Stanley Lubman from Berkeley:

Lubman adds that ever since the disastrous effects on thousands of babies of one company’s contaminated infant formula became public last year, Chinese officials fear being caught out by product liability issues. Until that scandal, Lubman adds, these officials – whose view of the world is often intensely local – often appear to have been more aware of the potential financial harm publicity about defective products can result in than about the very real harm such products can cause.

Some top managers of Sanlu (the company that sold most of the tainted milk) were condemned to death… Apparently that’s what it takes for SOE managers to change their behaviour.

Mr. Lubman also points to an important concept:

The culture that underpins Chinese business, that is, means the fear is of getting caught rather than of doing harm. And that is bad news for all those millions of global consumers buying the billions of products that carry the legend “Made in China” and thinking that they have the same kind of comeback they might have in the UK, say, or the US.

That’s the whole issue of appearance over substance–the importance of face in Chinese business. Doing something “bad” is no problem. Getting caught doing it is a problem.

Takeaway for importers: inspect the goods and catch the issues before shipment–don’t count on your supplier’s sense of responsibilities! If anything, Chinese private companies are more focused on the short term and less reliable than SOEs.