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Tainted exports damage China’s brand-building plans

Tainted exports damage China’s brand-building plans

The biggest cost to China from the wave of product recalls isn’t shuttered toy factories or wasted toothpaste: It’s the damage to its aspirations to become a centre of high-quality production. “China’s leaders want its exporters to move into higher-value sectors," said Mark Williams, an economist at Capital Economics Ltd in London. “Perceptions that Chinese goods are poor quality, or even dangerous, will make this hard."

China’s economic planners have been seeking to emulate Japan, which promoted a relentless focus on quality control as its manufacturers shifted after World War II from making toys, trinkets and bicycle lamps to technologically-advanced cameras and transistor radios.

After years of consistent improvements, Japanese companies such as Toyota Motor Corp. and Sony Corp. won the trust of consumers worldwide.

“Japan’s economic miracle was that it went from being an outsourced, unbranded manufacturer to a producer of brands," said Simon Anholt, a London-based policy adviser who created an index that tracks public perceptions of nations.

China set out its goals in a five-year plan that runs through 2010. “A stable, economical, clean and safe energy supply system must be built," the plan states, adding that industry will move from assembling to designing and producing high-technology brands.

However, a drumbeat of highly-publicized product recalls is making these goals seem more like a dream.

While Mattel Inc. has shouldered blame for the recall of 18 million toys that were potentially dangerous because of its own design flaws, its apology hasn’t quelled voices in the US Congress calling for tougher action against China.

The proportion of exports caught up in safety scares is small. Toys represented less than 1% of China’s $969 billion (about Rs45 trillion) of overseas sales last year. The items recalled by Mattel equal 0.3% of the 6.2 billion toys imported by the US in 2006, according to the government.

At the same time, the damage to China’s reputation is increasing: In the second quarter, it finished next to last in the Anholt Nations Brand Index—only Indonesia fared worse. The survey of 29,500 people in 35 countries measures how favourably consumers respond to a product after learning where it is made.

More bad publicity will make China’s transition harder, Anholt said.

“If Chinese products were suddenly fantastically good—very good value, advanced technology, beautiful design—it would take 10 years before people believed it," he said.

John Liu in Shanghai, Li Yanping and Dune Lawrence in Beijing and Nipa Piboontanasawat in Hong Kong contributed to this story.

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