Regulation isn't the answer

China's new revolutionaries: U.S. consumers

In the name of sovereignty, China's leaders for a long time have gotten away with suppressing their own citizens while ignoring the get-gloriously-rich-quick corruption that has thrived in the absence of the rule of law. But, thanks to globalization, China's export reliance on the U.S. market has imported the political demands of the U.S. consumer into the equation. 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.

No sanction is more devastating than consumer choice. Live by the market, die by the market.

So far, so good. But then he promotes regulation.

For consumers to trust Chinese products, they must trust regulation of those products. And regulation cannot be trusted without the rule of law, which doesn't bend to bribery, fraud and quanxi (connections).

By the way, that's "guānxì" 关系, with a "g".

In any case, If the goal is to make products safe, the best hope lies with companies eager to protect their profits

...our options are to (1) rely on the Chinese government, (2) have our government regulate what is brought to the U.S., or (3) let the market figure it out.

The Chinese government has the resources to act. China's $1.2 trillion in foreign reserves is either enough to wallpaper every dining room in the country with greenbacks or, one would think, regulate product quality. But despite China's willingness to execute the occasional official, government agencies at the national, regional and township level are too bureaucratic, or corrupt, to warrant our trust.

Those who advocate regulation by the West as the solution might be smoking unregulated substances. Aside from the obvious point that we have plenty of inspections and regulations of our own to worry about, the opportunity for Western manufacturers and anti-globalization interests to lobby against particular Chinese imports would be irresistible. They would use the new bureaucracy to reduce the general flow of Chinese goods. That would forward their objectives, but the results would be bad overall policy.

Waiting for the market to fix Chinese product quality -- doing nothing -- sounds like an unattractive solution. But the market is already reacting.

Consumers are thinking twice about buying no-name Chinese products with long lists of ingredients. U.S. distributors are checking their sources. Retailers, especially those who stock a lot of Chinese goods, are becoming a lot more concerned about their reputations. And Chinese firms and their partners are investing in brands.
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So how long will it take for the market to respond? Less time than it would take for new regulations to take effect.