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Business and Economy

Why China Keeps Poisoning the Milk

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Monday, 15 February 2010 14:47 Last Updated on Monday, 15 February 2010 14:47

Prime Minister S.Batbold has advised Mongolian businesses to keep strict watch over the quality of their products if they wish to compete in the international market. In this context it is interesting to see how China and Japan are tackling their own unique quality crises. In China, officials are hunting for 170 tons of contaminated milk powder that is still on shelves more than a year after the melamine scandal was first exposed. And in Japan, discussions are focused on all that has gone wrong with its automotive industry after Toyota's recent recalls. But a closer look at the two scandals shows how far apart the countries are in their approach to quality—and how much China stands to learn from Japan.

China's quality challenge has at times been compared to Japan's efforts in the 1950s and 1960s to transcend a bad reputation for manufacturing low-quality goods. At that time Japan also suffered tragic industrial disasters, like the mercury poisoning in Minamata that left 1,000 people dead. But Japan's leading companies have since been able to establish strong reputations for quality. Although the automotive recalls currently underway are extensive, design errors and electronic malfunctions are in a different league from China's instances of willful product manipulation, especially when that manipulation has involved artful efforts at circumventing third-party controls.

In China, operators display an incredible willingness to place public safety at risk in exchange for only the smallest gains in profit. The dairy industry's 2008 scandal is instructive. The trouble started when dairy farmers began adulterating milk with water, prompting dairy companies to test protein levels. Milk suppliers next discovered they could trick laboratory equipment into believing protein concentrations were higher by adding a toxic, chemical compound —melamine. Over time, more of the chemical was added, along with more water, and no one knows how little real milk was in the final product by the time the scandal broke. We only know the end result: six babies died, 300,000 were sickened and over 50,000 were hospitalized, causing untold grief to Chinese families.

The melamine scandal is by far the most disturbing of all the quality crises China has faced in recent years. It was not just the amount of suffering endured, but the fact that the contamination was an open secret shared by possibly hundreds of individuals at dozens of companies. While some people involved in the 2008 scandal might have been able to claim that they did not know melamine could do so much harm, those caught using melamine more recently cannot possibly plead ignorance.

Making matters worse has been the government's wrongheaded response. Beijing reacted to this year's melamine scandal with a heavy-handed cover-up. Chinese journalists have been warned not to report details surrounding milk cases. Parents of children sickened by melamine-tainted products who have attempted to organize themselves to protest or seek compensation risk being sent to jail for "social disruption".

China's State-directed legal system has failed to provide justice to victims. The government meted out severe punishment to only a small number of perpetrators engaged in the distribution and production of poisoned milk—two were executed—and a far greater number were let off the hook. China's response to past scandals has been to protect industry with a government shield, so no one should be surprised when fraud recurs in such an environment.

The melamine case illustrates the dangers of Chinese manufacturers' pathological focus on short-term profitability. Accidents can happen in almost any production process, but melamine did not coincidentally make its way into milk. China's obsession with thrift is a virtue often carried to a fault. Police have noted that the current melamine scandal was made possible by the many tons of melamine that remained from the 2008 scandal. Some distributors chose to repackage the tainted powder and put it on store shelves. They could not stand the thought of throwing away so much milk powder, even if it was dangerously contaminated, and even if it meant running the risk of being punished for it.

Japan's reputation for high quality in recent decades owes much to W. Edwards Deming, the father of "total quality management". Were he around today, Deming would remind us that negative reinforcement mechanisms are no way to improve quality standards. Quality must be seen as something positive; it must be seen as something that drives long-term growth. It must be a goal shared by all stakeholders. As it stands today, a small number of unscrupulous actors in China threaten to ruin the export opportunity for many.

When he arrived in Japan in the 1950s, one of Deming's goals was to drive fear out of manufacturing processes. Workers ought to have an open line of communication with management. There must be an opportunity to report incidences and concerns from the factory floor. Partly thanks to the work of Deming, Japan is today an economy that places a high value on the pursuit of quality for its own sake, and that vision has helped Japan to become an innovator in a wide variety of manufacturing sectors.

In China, workers are too afraid to report even the most obvious production errors or the most egregious cases of unethical misconduct. In many factories, line operators are reluctant to report anything at all. Managers ignore issues that might cause embarrassment. Everyone involved is making a risk calculation, determining that staying silent reduces the likelihood of trouble, at least in the short run. Where workers ought to speak up, the inclination is to look the other way instead.

One of China's problems is that efforts to improve quality are focused on the finished product only. Every time a scandal erupts, the answer has been to test more of the finished product. This after-the-fact approach is no match for an emphasis on continual, systemic improvement. As Deming suggested, "We should work on our process, not the outcome of our processes."
China should not take Japan's recent stumble as an opportunity to gloat. Japan's quality problems are unfortunate, but they are an aberration not representative of the manufacturing industry there. Now more than ever, China should be looking to its easterly neighbor as an example of how its own economy can adopt a philosophy of quality and product development that is the envy of the world.

Source: The Wall Street Journal Asia
Highlighted in BCM Newswire Article 105

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