Cheap? Yes — but now China has quality issue

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A recent China Automobile Consumer Satisfaction survey found that 77 percent of new car owners reported problems, with 338 problems for every 100 vehicles. The report blamed automakers for using cheaper parts to cut costs as they battle ferocious competition.

"The 'whatever we can do to get it a few cents cheaper' attitude has now led to U.S. firms being confronted with major problems," says Steve Vickers, president of the consultancy International Risk. "We end up doing business with people we shouldn't be doing business with. Or we end up dumping people and leaving them with the ability to continue to manufacture our product."

A scandal over contaminated pet food that killed dogs and cats in North America drew public attention to the problem. Then came reports of tainted toothpaste and fish, faulty tires and toy trains covered with lead paint.

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The situation is worse inside China, where stores are filled with shoddy goods, whether it's sandals that fall apart within a week of purchase, electric foot baths that pose an electrocution hazard or zippers that don't zip. From cough syrup to cars, Chinese manufacturers often compromise on quality in an unceasing bid to undercut the competition on price.

"Multinational companies are very aware of quality standards but local companies are more lax. There's a very big gap," says Rich Wong, a sales and marketing director for Thermo Fischer Scientific Inc., which sells equipment to analyze lead, cadmium and other toxins in various products.

As China moves into big-ticket items such as cars and even passenger planes, closing that gap remains a major hurdle.

Chrysler and Chery, China's biggest independent automaker, plan to export cars to Latin America or Eastern Europe within a year and to North America and Western Europe by 2010, Chrysler CEO Tom LaSorda announced this month in Beijing.

Other foreign automakers, such as General Motors Corp., have so far shied away from exporting Chinese cars to major Western markets, aware that earlier attempts to sell cheap cars in the United States, such as the Yugo, were a fiasco.

"It is too early for Chinese automakers to think about exporting to European and US markets," said Zhang Xin, an industry analyst at Guotai Jun'an Securities.

Some experts believe the recent spate of complaints over the safety of foods, drugs and other products shipped from China could prompt improvements similar to a "quality revolution" that Japan embarked on in the 1960s.

"If the Chinese realize that they are losing business to India and Vietnam, which can beat them on price even if not on quality, then the quality in China will start improving," Wong said.

Much depends on how seriously the government takes the quality issue. While authorities have publicly expressed determination to address the problems, they've also accused the international media of fueling unfounded fears about the safety of Chinese exports.

"My fear is that the government will come to the conclusion that this is another China-bashing attempt by the West, and that they won't take it on board as being a wake up call to bring up quality," Vickers said.

The telecommunications equipment industry, where Chinese companies already are a major force, offers reason for hope. But analysts say that the auto industry, while making great strides, still needs to improve.

Just ask Wang, who got fed up and sold his Xiali.

"Small problems can be very annoying if they occur again and again," he said. "I take the bus now. I don't want to be bothered anymore."

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