China's current challenges are only too familiar
Updated: 2007-07-20 16:20
Consumer expectations and demands are only slowly beginning to have an impact on product quality and safety. Truly egregious crimes of corruption and official misconduct may lead to highly visible executions, but these punishments will have only a limited deterrent effect.
Real and widespread change in the Chinese regulatory environment will come from two much more important developments. First, the better Chinese companies, the ones with Western customers and international ambitions for their own products and their brands, will band together and plead for better and more effective regulation. They will be joined by the Western companies themselves, the ones with operations in China whose managers wonder about the quality of the ingredients that they use, just like my wife and I do. These managers, after all, already are under close examination by their regulators and customers outside China. Both the Chinese and the Western companies want and need a level playing field where the worst of the price-bound competitors no longer play with an unfair advantage.
Second, the national government will step in with rules and regulations that will be enforceable ... and that in fact will be enforced. Trust me on this: The last thing China will do is leaving decision-making about its people and its companies to the international marketplace.
However much China's has become a market economy, faster and more dramatically than any in history, it remains a directed market economy, and the new direction will be more uniform and more vigorously enforced national regulations.
What will these changes mean for the size and shape of China's national government? Like the federal government in the United States during the New Deal and even more emphatically during the two decades from 1960 to 1980, the Chinese national government will grow much, much bigger, its regulatory reach into the provinces will become much greater and it will discover that purse strings provide a more humane and a more effective lever for gaining compliance with national regulations than executions and imprisonment.
Chinese companies and their Western brethren with huge Chinese operations face two challenges today. They need to manage and communicate their way through a series of crises - related to product safety, public health, environmental quality, labor practices and a host of other public issues - that are just now beginning and that likely will continue to challenge them, at least through the Beijing Olympics. At the same time, they need to learn quickly how to help shape the new regulatory directions that the government is bound to take, how to help educate government officials about which rules will work and which will not and how to make the kinds of strategic bets about regulatory policies and their own investments that either will allow them to adapt quickly and prosper - or that will condemn them to a quick demise.
All this makes a Washington lawyer in Beijing feel right at home.
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