I’ve been deleting old emails today and in doing so I have deleted far too many that relate to China product quality problems.  Here’s the most recent such email, with all identifiers removed to protect the victim:

My company purchased hundreds of _____ from a company in China for about $65,000. Most of these _______ were defective when we received them. They [the Chinese manufacturer] told us that they would make up for this on our next order. We made another order and we got more defective _________.

We then upgraded the _________ to what was supposed to be a better quality ________. Again, we have received defective ________. We are
now getting many returns from our customers who bought these _______ and
this is costing us tens of thousands of dollars.

I would like to know if there is any way that we can get our money back for
all the bad ________. We have all invoices, communications, and videos and
pictures.

We also want to know if we can sue for attorney costs to resolve this matter
as well?

My response, which is pretty much pure template these days, was as follows:

I hate to have to tell you this, but you have probably set yourself up so that a good solution is very unlikely.
You say that you have all “invoices, communications, and videos and pictures,” but you fail to mention the most important thing of all, which is a signed AND sealed contract in Chinese that makes very clear exactly what the Chinese manufacturer was to provide you and the penalties it owes for having failed to do so.
Once you have the sort of problem that you had with a Chinese manufacturer, you run away.  Fast.  And you don’t go back for more and then back again.  Ever.
We typically charge a flat fee on these sorts of cases, along with a percentage of whatever we recover, with the fee and the percent based on how we access the case after reviewing all relevant documetns.
When we take on these cases, we review all the documents and try to get anything back for our clients by writing a letter in Chinese threatening to sue.  I don’t think that will work here and I would urge you not to retain us.
The other thing I would urge you to do is to not order anything from China again without a good contract in place. Good contracts usually work by driving away the bad Chinese companies and by forcing the good ones to toe the line.  China does not typically award attorneys’ fees unless that award is set forth in a signed contract. For more on what you can be doing to protect yourself by from China product problems, I urge you to read the following:

I am truly sorry this has happened to you and I am also sorry that I cannot be more positive about it, but the last thing I want to do is to add to your pain by taking more of your money on something that probably will not give you any value back.
Not surprisingly, I did not hear back.

Every December, we get an even greater than normal number of phone calls from companies that have received bad product or no product at all and the past two weeks have been no exception.  And as is almost always the case, I blame the “victim.”

I blame the victim because without exception, in every single case where we have gotten such a call, the non-Chinese buyer has done a lot of things wrong in its sourcing of product from China and now it is, to put it somewhat harshly, paying the price for that.

But what so often really drives me nuts about these people is that after I tell them exactly why my law firm has zero interest in their case, some of them say something like “I knew you can’t trust Chinese companies” or “I knew they had no law there” and then they usually say something like “I’m never going to do business there again. The risks are just too high.”

Wrong. Wrong. Wrong.

What I always want to tell them, but pretty much never do, is the following:

What are you talking about?  You did NOTHING to try to protect yourself.  You didn’t research the Chinese company before sending them money.  You didn’t use anyone to monitor quality control.  You didn’t use anyone to write you a contract that would actually work in a Chinese Court.  So really, what did you expect? I hate to tell you this, but we have hundreds of clients who buy from China all the time and they almost never experience anything close to what you are going through.

It reminds me of a relative I have (not on my side of the family, I might add), who during the tech boom would brag about how he had gotten so good at the market he would be earning 20% a year forever.  Yes, he actually said that.  But what is even more interesting is that after the market crashed and he lost a ton of money, he then started preaching how the market was rigged and he would never buy stocks again, not once even referencing his prior claims.  As my older brother the stockbroker is always saying, “genius is a rising market.”  But the corrollary to that for this relative is that a falling market is a rigged market to be avoided by everyone.

Wrong. Wrong. Wrong.

Just like there are ways to do well in the stock market (over time), there are ways to do well in the China product sourcing market.  The way to increase your odds of getting the product for which you paid is to do the following:

1. Make your product purchases from China under a well-drafted contract that is enforceable in China. Purchases under informal purchase orders simply do not work for China.  For more on China OEM Agreements, check out the following:

2. The contract with the Chinese manufacturer must provide for a mechanism where the foreign buyer can exercise constant control over the quality of the Chinese product. Liability for defect must be made clear and it must fall hard on the Chinese side. If possible, no defective product should ever be permitted to even leave the Chinese factory. If defective product is discovered outside of China, the Chinese side must be absolutely liable for dealing with the problem. The standard procedure (in China, anyway) for dealing with defects through a discount on future purchases must not be used.

3. The foreign buyer must actually follow through and constantly monitor the quality of the product. The best contract with the best procedure is no good if the foreign side does not follow through by rigorously implementing the procedures outlined in it. As I mentioned above, this is an expensive and tiresome process. Parties that do not follow through are almost guaranteed to experience problems in China. These problems are an irritant to the Chinese side but can be fatal to the foreign side. For this reason, the only side that has any incentive to follow through is the foreign side.

Is China product quality getting  better?  Yes and no. Chinese manufacturers are not doing a better job on their own at maintaining quality. In fact, if left on their own, much evidence suggests they are doing worse. But yes, the legal system and quality control systems have progressed to the point where aware and active foreign companies can force Chinese manufacturers to operate in a reasonably acceptable manner. “Forcing” means doing things right.

What do you think?

By: Steve Dickinson

China automakers Chery and Great Wall were recently forced to recall 23,000 autos exported to Australia. The reason for the recall is that the brake linings and engine gaskets in the cars contained asbestos. Asbestos is banned in Australia and 55 other countries. Due to the hazardous nature of the product, the cars had to be recalled back to China since remediation in Australia was not possible. It is assumed that all involved suffered substantial losses and that the Chinese move into the Australian auto market has been permanently damaged.

Chery and Great Wall have been on a push over the past several years to export their products overseas. Their efforts have been limited mostly to second and third tier markets. Entry into Australia was intended as the first move into first tier developed country markets. After Australia, the plan was to move strongly into North America and Europe. This recall suggests that the entry into Australia will be a failure. This bodes ill for any plans to enter the highly competitive North American/EU markets.

How can this monumental blunder be explained? In a recent WSJ blog post, China auto industry expert Michael Dunne attributes the catastrophe to “quality fade.” Quality fade occurs when initial production meets all applicable standards, but later production level deliveries are defective. The defects are in hidden components not easily discovered by surface inspections. Over time, the problem gets worse, hence the description “fade”.

The Chinese cars fit this description perfectly. The cars looked just fine; the defects were hidden in the brake linings and gaskets. Why the Chinese companies would destroy their entry into Australia merely to save small change on these cheap components is a mystery. However, the fact is they did it and foreign buyers of Chinese products should consider this lesson carefully. If a Chinese company will do this to themselves, what will they do to an unrelated importer? The answer is that it appears that Chinese companies will do virtually anything to save a few pennies.  A big question with respect to Chery and Great Wall is whether they were victims or perpetrators as it is quite possible that they received the gaskets and brake linings from outside suppliers.

Foreign companies remain heavy buyers of manufactured goods from China. As these goods become more complex, the risk of hidden defects only increases. The China auto fiasco provides a number of lessons:

  • You can never relent in constantly monitoring quality. Most foreign companies with whom we work assume that Chinese manufacturers will improve over time. The whole premise of quality fade/quality creep is that exactly the opposite is true. The first few deliveries are likely to be the best delivery. Without active intervention, the buyer should expect each subsequent delivery to be worse than the previous. Since this result is counter-intuitive, foreign buyers have to be constantly on guard. Active intervention is costly and mentally exhausting. Most foreign buyers eventually tire of the process. However, such active involvement is the price of purchasing from Chinese manufacturers. Buyers that do not want to incur the cost should avoid China.
  • Do not take current success as an indicator of continued good performance. Many Chinese companies will perform well for several years, causing the foreign buyer to drop its guard. After the guard is down, a sudden drop in quality will occur, causing extreme damage. This is what happened in the lead content in toys issue that arose in Guangdong several years ago. The message is the same: a foreign buyer can never relax its vigilance on quality. The fact that a manufacturer has not had a problem for many years means very little in predicting future quality.
  • Do not expect that a desire for a good commercial reputation will act to control the behavior of Chinese companies. Most manufacturers in the OEM world are privately owned. These companies operate under thin margins and are in a constant struggle to survive.  Few of them are concerned about the long term. They are mostly only concerned with day-to-day survival. Most state owned enterprises are similarly weak financially. For those that are not, reputation also means nothing. The stronger state owned enterprises are protected by the state. A bad reputation with foreign entities is not important to their long-term survival
  • Do not assume that you know where problems will occur. Take the autos issue. Most buyers would assume that problems would appear in major systems like the engine or differential or steering. Instead, the problem appeared in break liners and gaskets, cheap components that would not normally raise attention. This is a very common occurrence in China. The Chinese manufacturer will make the primary and expensive component just fine and then ruin it with non-standard and defective accessories. This happens often in the home furnishings sector: an otherwise well made sink set is ruined with substandard faucet fittings.

What is the solution? The main point I want to make is that there IS a solution. The solution works as follows:

1. All purchases from China must be made under a well-drafted contract that is enforceable in China. Purchases under informal purchase orders simply do not work for China.  For more on China OEM Agreements, check out the following:

2. The contract with the Chinese manufacturer must provide for a mechanism where the foreign buyer can exercise constant control over the quality of the Chinese product. Liability for defect must be made clear and it must fall hard on the Chinese side. If possible, no defective product should ever be permitted to even leave the Chinese factory. If defective product is discovered outside of China, the Chinese side must be absolutely liable for dealing with the problem. The standard procedure (in China, anyway) for dealing with defects through a discount on future purchases must not be used.

3. The foreign buyer must actually follow through and constantly monitor the quality of the product. The best contract with the best procedure is no good if the foreign side does not follow through by rigorously implementing the procedures outlined in it. As I mentioned above, this is an expensive and tiresome process. Parties that do not follow through are almost guaranteed to experience problems in China. These problems are an irritant to the Chinese side but can be fatal to the foreign side. For this reason, the only side that has any incentive to follow through is the foreign side.

Our clients often ask us whether China product quality is getting any better. My standard answer is no and yes. No, Chinese manufacturers are not doing a better job on their own at maintaining quality. In fact, if left on their own, much evidence suggests they are doing worse. But yes, the legal system and quality control systems have progressed to the point where aware and active foreign companies can force Chinese manufacturers to operate in a reasonably acceptable manner. However, they have to be forced to do it. They will not do it on their own. The Chery/Great Wall fiasco illustrates this final point.

Do you agree?

Because I receive countless emails every day and because so many of them involve the same questions, I have developed various templates to respond. 

Here’s the template I use when a US company writes me with a China product quality problem and the contract they have provided me is not good at all. Much of the time the US has no contract at all, but usually when they do have one, it is usualy so bad as to work against them. Here’s my “stock” answer in that situation.

This is our template response when the contract calls for arbitration in a US city but is pretty much silent on everything else (a far too common scenario when non-lawyers draft a contract).

It’s a tough case and your contract does not help matters at all.

What you probably will need to do is begin arbitration in [US City] and serve [the Chinese company] via the Hague Convention. This will require translating the complaint into Chinese and serving it through the Chinese court system, which takes months. We write our arbitration contracts to say that service can be done by email/fax/personal delivery so as to avoid this sort of situation. 

Your contract is silent regarding the arbitration panel to be used and the choice of law.  I hate to tell you this, but we had a case with a similar arbitration provision and it cost our client $50,000 to get the case into arbitration in the first place because the other side used the vagueness of the provision to stall.  And that was just the arbitration panel alone.  It could cost $10,000 easy to figure out what law should apply here and in the end, I am very worried it will be Chinese law.  I’m worried about that because under Chinese law, terms like “highest quality” and “best workmanship” can be very different from the US.  Very different.

In the end, the arbitrator will probably use US standards (without saying so explicitly) but you’ve opened yourself up for a whole lot of argument in the meantime.  If your complaints are based on the Chinese company’s failure to build your product according to ____ standard or to meet _________ certification, your case becomes a bit simpler because there is at least something clear cut against we can measure the product you received.  You may need an expert to testify regarding the quality problems and that is more cost.

So now that I’ve told you the many issues that you may need to confront just to get the case into arbitration and then to win in arbitration, I’m going to tell you that even if you win in arbitration, you are only about 60% of the way there. Because after you win in the US, you will need to take your US arbitration award over to China and then convert it into a Chinese court judgment and that is going to take a while and will likely involve its own set of fights. Once you have a Chinese court judgment, trying to collect on it will be the next difficult and expensive task.

Here is how I suggest you proceed:

1.  If you are ever going to buy product from China again, you should hire us or some other law firm experienced in writing Chinese OEM Agreements. We typically write the official contract in Chinese (with a Chinese court dispute clause) and the translation in English.  A good contract scares Chinese companies and your threat of a lawsuit thus has a lot more force. Most importantly, a good contract is much more likely to make it worth your Chinese manufacturer’s while to do things right from the get go.

2.  I am very skeptical that it will be worth your while to pursue arbitration in the United States, but that seems to be the only litigation/arbitration route you have.

3.  One other option you have is to have us write a demand letter to [Chinese company] in Chinese to stating that if it does not resolve and pay for the product quality issues, we will pursue arbitration in [US City] pursuant to the contract and then take that arbitration award to China and turn it into a court judgment.  We would act like all of that will be easy. We have a decent (but not great) success rate with these letters in that we do sometimes get real money back for our clients by writing them, even when the litigation/arbitration option is gloomy.

If you have any questions, please feel free to write or call.

What do you think? Part II of this will be the letter we write when the contract calls for litigation in a US city (which is even worse than arbitration, BTW).

This latest recession has only caused even more small and medium sized businesses to look to cut costs by outsourcing their product manufacturing to China. Unfortunately, many of these companies now engaging in OEM (original equipment manufacturing) outsourcing to China are failing to take some or all of the minimal legal steps necessary to protect themselves. When problems arise, they can do little or nothing to protect themselves because they have no legal basis for protection.
China’s legal system for resolving commercial disputes has improved greatly over the past ten years and taking a few basic legal steps can greatly reduce your risk. The cost of such protection is modest compared to the protection it will provide.
The following five basic steps will greatly reduce your problems with Chinese manufacturers, while improving your chances of recovering should any problems arise.

1. Create and properly register your intellectual property rights in the United States or whatever country or countries in which you sell the bulk of your products. If you do not have a firm basis for your IP rights under U.S. law, you will have nothing to protect in China. Before you go to China, be sure your intellectual property is protected under U.S. law or the laws of whatever country or countries in which you sell your products. Protect your brand identity by creating and registering your trademark, slogan and/or logo. Register your important copyrights. Carefully identify and protect your trade secrets, proprietary information and know how. Patent what you can.

Doing the above will mean that no matter what happens in China, you will at least be able to protect your product to the fullest extent possible in the country or countries in which you sell your products.

2. Register your trademarks in China. Registration can protect your future access to the Chinese market, prevent the export of counterfeit goods from China, and prevent a competitor from registering your mark in China, which would prohibit you from exporting your own product from China. For more on the necessity of registering your trademark in China, check out, “WHEN To Register Your China Trademark” and “China Trademarks — Do You Feel Lucky? Do You?

3. Use a written agreement to protect your know how and trade secrets in China. Small and medium sized companies usually do not have an extensive portfolio of patents. Their most valuable intangible assets typically are their know-how and their trade secrets, which cannot be protected by formal registration. Chinese law, however, permits companies to contractually protect their know how and trade secrets by contract. Such agreements may (and in most cases should) also address issues such as non-competition and confidentiality. Without such a written agreement, no such protection is available. For more on using non disclosure agreements (NDA) in China, check out, “Why Non Disclosures (NDAs) Alone Are Not Enough For China.

4. Product Quality and Payment Terms. The rule here is simple. Do not make final payment to your Chinese manufacturer until you are confident you will be getting an on time shipment of the correct items and quantities at the quality standards you require. This usually means you must incur inspection costs in China and provide for a clear procedure for dealing with these problems as they arise. You must take the lead on this. You cannot depend on the OEM manufacturer to do this for you.

5. Use comprehensive OEM Agreements with each manufacturer. Small and medium sized businesses often enter into OEM manufacturing transactions with a simple purchase order. This is a mistake. The purchase order will not protect you. Your protection depends on your securing a signed written OEM manufacturing agreement with each Chinese manufacturer with which you deal. The ideal OEM agreement will address all of the issues discussed above while also addressing other basic legal issues such as jurisdiction and dispute resolution. This agreement should be in both Chinese and English, since the Chinese language version will control in China. For more on this, check out, “China OEM Agreements. Why Ours Are In Chinese. Flat Out.

If you do the above, you will greatly increase the chances of good results from your China outsourcing. For some more tips on China product outsourcing (including non-legal ones), you should also check out, “The Six (Not Five) Keys To China Quality” and “Six More Keys To Quality Product Made In China.

A client sent me an article the other day to ask me if it was accurate. I replied that it was, but that it left out one important element. The article is entitled, “5 Keys to Quality when Working with Chinese Suppliers” [link no longer exists] and it sets forth the following as the five keys:

1.  Detailed Documents.  “The number one key to quality when working with factories in China is documentation. Having bi-lingual, detailed, factory agreed upon checklists in place that document an item’s specifications and the criteria for inspecting the product before shipment, is essential to controlling product quality. One can not say for sure, but I would be willing to bet that the factories responsible for products recently recalled for lead paint did not have bi-lingual documentation on hand from their customer stating the type of paints that could and could not be used. Sure, this type of documentation takes time and hard work to create, but putting such processes in place is the first and most important step in avoiding quality issues. QC Checklists should describe in detail:

  • Item Packaging
  • Item Defect Classification (what is considered an defect and at what severity)
  • Item Size and Other Specifications
  • Item Functionality and How it is Checked”

2. Factory Presence.  Having a presence at the factory ensures that both factory staff and management really know who you are. Either through a 3rd party QC company or your own staff, ensure that you are being represented at the factory in person on a regular basis, and that the factory clearly connects your presence there with your production.

3. Inspection.  Perform regular product inspections (either with your staff or a via 3rd party), not only on the final product shipment, but also during production (otherwise knows as DUPRO). Ensure these inspections are consistent and based on clear inspection criteria. Always review the inspection results with factory management and their own QC team.

4. Keep Approved Samples.  Some say that a picture is worth a thousand words. I say that a sample is worth a thousand headaches! Items often get revised and modified several times in the sourcing process, and then again after production begins. Keeping an approved sample in your office, and also one in the factory that can be used to verify the production product by the QC team, is essential in seeing eye to eye with your Chinese suppliers.

5. Take Responsibility.  Nothing will alienate your Chinese suppliers more than a mistake on your side for which you take no responsibility, and blame their misunderstanding. I’ve seen hard-headed buyers make this mistake more than once, to the demise of their hard earned factory relationships. So, make sure you have all the facts before you start to blame. Recognize when it’s possible that a mistake or production issue may have been caused by your own fault, or your own team’s mis-communication. Take responsibility when this happens, even if it means a financial loss. If you are working with the factory on a long term basis, the credibility you will gain will outweigh what you have given up.

I agree with all of this, but I also vehemently believe that a well crafted contract is also key. My own experience and that of manufacturers with whom I speak tell me that a good contract can itself help to maintain quality. How? Simple. Chinese companies, like companies everywhere, do not relish being sued. A good contract incorporates the key quality requirements and also sets up the Chinese company for liability for failing to meet those requirements.

One example. We typically put a provision in our OEM agreements (which we nearly always do in Chinese for better enforcement in China against the manufacturer) mandating that the Chinese manufacturer cannot subcontract out the manufacturing. We have been doing this for years and, as far as we know, no manufacturer has ever violated this provision. I know many of you are dubious of this record, but hear me out. Let’s say the Chinese manufacturer has 30 customers for whom it manufacturers product. Let’s say only four of those customers have a no subcontracting provision (my guess is this number is more like to be two, but for the sake of argument, let’s go with four here). The China OEM manufacturer gets really busy and has to subcontract out some of its manufacturing. It can subcontract out the product manufacturing of any of its 30 customers, so why wouldn’t it choose to subcontract out the product for the 26 customers who have no contract provision prohibiting subcontracting? I call this the bike lock theory of Chinese law because the no-subcontract provision operates like a good bike lock. The thief can still steal your bike, but why would he when there are so many easier targets out there?

What do you think?

UPDATE: Product Global has just done a post, entitled, “7 (not 5 or 6) keys to Quality When Working with Chinese Manufacturers: Sourcing.” The new addition being finding a quality Chinese manufacturer. Product Global says this is the most important key and I agree.

The PN China Blog recently posted on counterfeiting and poor quality products in China. The post is entitled, “A Monumental Blacklist” and it discusses why Chinese companies so frequently and confidently engage in unfair business practices (including counterfeiting) and what needs to be done to stop it.

The post starts out answering “why unethical business practices are so rampant and what counterfeiters thrive on” by quoting a Chinese friend who says “it’s OK to burn your customers and not expect them to come back, because if you burn every Chinese person [of the 1.3 billion] once, you’ll make a fortune already.” PN China agrees there needs to be more accountability:

That’s sort of true. But more fundamentally, it’s because China doesn’t have a credit monitoring system for individuals or record keeping agency for foul businesses. No Better Business Bureaus. Consumers are in the dark. Therefore, even if the bad businesses, mostly very small in scale, get exposed by the press, the owners often disappear overnight and start a new shop the next day.

Things are improving, “gradually:”

Thanks to the wave of recalls of Chinese-made products in the West, the Chinese government, worried about the export-led gross domestic product, started right away pushing for mechanisms that track product information. An unprecedented “Product Quality Credit Scores” database was launched January 15, 2008, by China’s Administration of Quality Supervision, Inspection and Quarantine. “Focus on product quality and credit, establish good faith,” it says on the Web site. Anyone can use the online system to search the records for a company name or product name as well as browse relevant laws, standards and announcements. The system has six channels, 17 sub-databases, and 430,000 records. It also keeps track of all recalls of made-in-China products by the U.S. Consumer Product Safety Commission.

PN China tested the database and found 831 problem companies listed and concluded it to be a “good starting point.” It is right now in Chinese only and I am less optimistic about a database like this. I believe that for something like this to work (and something like this could work, but only if it gets a huge number of reviews), it needs to be in both Chinese and English. It also should be run by a private company, not by a Chinese governmental entity, though China is reticent about allowing private companies (particularly foreign companies) to get involved in this sort of information dissemination. Most importantly though, there will have to be a better way to monitor the companies that shut down due to problems and then open again under a new name.

Fascinating (and sad) article at Caijing Magazine on the suicide by Cheung Shu-hung, the deputy chair of Foshan Lee Der Toys Limited. Foshan Lee Der was a leading supplier of toys to Mattel and one of the companies named in the recent recall involving lead paint. The article is entitled Death of a Toy Maker, and it gives considerable insight as to how the lead paint problem arose and on how difficult it will be to prevent future such problems. If I had to list just one takeaway from the article it would be that even the greatest inspection systems are worthless if not rigorously followed.

Anyone involved in having product manufactured in China or China product quality control should read Death of a Toy Maker.

Kenneth Ross, a well known product safety lawyer out of Minneapolis, wrote me yesterday regarding a U.S. client of his that had contacted him regarding a new Chinese government product safety initiative. Ross’s client has a Shenzhen factory making small appliances for sale in the U.S., similar to product that was recently recalled in the U.S. “As a result of this recall, the China Inspection and Quarantine Bureau (“CIQ”) investigated and basically redesigned this product and then informed all manufacturers of this product located in Shenzhen that they must immediately redesign and rework these products according to CIQ-specified design mandates.”

The manufacturers can get around this government redesign requirement only if they “guarantee” there will not be a recall of their product in the U.S. Therefore, we now have the Chinese government so concerned about the possibility of future product recalls in the United States that it is redesigning products and then requiring manufacturers to make incorporate these redesigns to be able to continue exporting their products.

This is the first I have heard of anything like this. Has anyone heard about the Chinese government doing this for any products? What happens if the “guarantee” is violated? Criminal liability? Any ideas on what is going on here?

Interesting and thought provoking LA Times article by Nathan Gardels, editor in chief of New Perspectives Quarterly (a/k/a NPQ). Gardels’ article is entitled, China’s new revolutionaries: U.S. consumers. Beijing must yield to market forces demanding the rule of law and an end to corruption. Grossly simplified, its thesis is that US consumers are changing China’s governance. This is a sort of a twist on the seemingly age old question on the ability of capitalism to effect governmental change.

Gardels asserts that “China’s export reliance on the U.S. market has imported the political demands of the U.S. consumer into the equation” as a sort of trojan horse:

Americans won’t hesitate to cut the import lifeline and shift away from Chinese products that might poison their children or kill their pets.

Unlike organized labor or human rights groups, consumers don’t have to mobilize to effect change; they only have to stop spending. And their bargaining agents — Wal-Mart, Target, Toys R Us — have immensely more clout than the AFL-CIO and Amnesty International in fostering change in China.

Ironically, the United States’ “most favored nation” trade treatment for China (and its later entry into the World Trade Organization), which labor and human rights groups so virulently opposed in the past, has become a Trojan horse. China’s future is now so linked to the American consumer that Beijing will be forced to curb corruption and strengthen regulation through the rule of law or face the certain doom of its export-led growth.

According to Gardels’ theory, “no sanction is more devastating than consumer choice” and those who “live by the market, die by the market.’ For consumers to trust products, they must trust the regulation of those products and regulation “cannot be trusted without the rule of law, which doesn’t bend to bribery, fraud and quanxi (connections).” Globalization “has accelerated this process by forging a kind of objective coalition of the growing Chinese middle class and the American consumer in favor of the rule of law.”

Gardels’ does not see “savvy consumers” buying into “China’s response of prosecuting or executing high-level officials — ‘killing the chicken to scare the monkey.'” “They simply want the lead removed from their children’s toys or they will take their purchases elsewhere.”

Gardels wisely notes, however, that a “move toward the reliable rule of law is not democracy, but it is a big step on the long march in that direction.”

He may be right.

What do you think?