Chinese investments may suffer from the deaths of pets with contaminated food and the deaths of people in Panama with corrupted toothpaste were a warning call.
Since that time there has been another Chinese product scandal almost every day. Chinese children’s toys contained lead. Chinese tires were lacking and may fall apart.
Last week the China scare was about fish.
A June 29, 2007 USA Today article says: “In the past 13 months, at least two dozen shipments of catfish, eel and tilapia from Meihua were rejected for entry into the USA by the Food and Drug Administration, FDA records show.
The products were rejected because of actual or suspected contamination that included an anti-fungal that battles fish diseases but isn’t allowed by the FDA because it has been shown to increase cancer rates in lab animals.”
The article goes on to say The Food and Drug Administration imposed import restrictions Thursday (June 28, 2007) on five types of Chinese raised fish saying that many have been found to contain chemicals the USA doesn’t allow in food for health reasons including long term cancer risks. The action may drive up some prices, delay shipments and add tensions between the USA and China which has been criticized in recent months for supplying tainted ingredients for pet food, toothpaste containing a poisonous chemical, faulty tires and toys containing lead.
Consumer rejection of Chinese products could lead to one of the worst social economic scenarios we can imagine. In a moment I will explain why.
First, realize that pollution in food is not just a Chinese problem. If you think so, reread Upton Sinclair’s “The Jungle” to learn how bad the US food processing business was at the turn of the last century. I recall for some odd reason my high school (junior year) history teacher telling me how Teddy Roosevelt after reading Sinclair’s book shouted, “I have been poisoned after eating sausage for breakfast”.
The problem of dangerous product manufacturing processes is an emerging country problem. The emerging country problem in turn is a globalization problem.
There will not be a quick fix to either of these problems for several reasons.
First, China does not have the infrastructure to accommodate the changes it needs to make in a hurry.
Dutch headquartered, Rabobank, did a study in 2005 about Chinese fish farming. The report outlined a number of difficulties, such as “serious”
water pollution, industrial and urban sewage, inadequate quality-control and the need to use chemicals (even when illegal) to fight fish disease.
China’s poor regulatory enforcement ability and Chinese farmers who lack means or incentive to maintain high quality are major concerns but just the tip of the iceberg.
The second problem is that inflation is already rampant. The West needs low cost Chinese products to keep prices down.
The third reason there is no quick fix and the really major concern is that this also a global environmental problem as well.
Imported seafood has always been treated as high-risk. Seafood is highly perishable, a perfect bacterial culture and susceptible to outside pollution. The FDA refused entry to plenty of sea food last year because of filth and salmonella.
This new problem is contained in farmed fish. Half of the fish U.S.
consumers eat is now farmed, because there so much demand that is increasing and too little supply that is decreasing.
Farming creates new environmental and safety problems as does almost any mono culture. Fish are grown in closed environments which enhance health problems and require antibiotics or anti-fungals and such to keep these problems at bay.
These problems are especially in developing countries where water pollution is rampant and the ability of farmers to invest and upgrade is limited.
A special editorial in the May 24, 2007 edition of the China Post by Harold Meyerson points out many of the forces that are creating these upheavals. Here are excerpts of that editorial:
“And what is madame’s dining preference this evening? Scallops coated with putrefying bacteria? Or mushrooms laced with illegal pesticides?
These delicacies and more were among the hundred-plus foods from China that our Food and Drug Administration detained at U.S. ports last month, Rick Weiss reported in The Washington Post. Detained and sent back to the importers, who oft-times sent them back to us again.
“And that’s just the hors d’oeuvres. Moving on to the entree, madame can sup on U.S. chicken, pork and fish tainted with Chinese pet food ingredients, or on poultry arriving in crates labeled ‘prune slices’ and ‘vegetables,’ from Chinese slaughterhouses straight out of Upton Sinclair’s 1906 novel, “The Jungle.”
“Madame will be happy to know that her government is working to speed more of these toxins to her table. FDA inspectors are able to check less than 1 percent of regulated Chinese food imports (which is why the importers, if at first they don’t succeed, try, try again), but the Bush administration is not content to rest on its laurels. Under pressure from U.S. agribusiness, which wants more entry to the Chinese market — something the Chinese will not grant absent more entry to our market — the Agriculture Department is reportedly inclined to change its rules and let China send us its chicken undisguised.
“If it does, Weiss reports, much of American business will breathe easier.
‘So many U.S. companies are directly or indirectly involved in China now,’
says Robert B. Cassidy, a former assistant U.S. trade representative for China, ‘the commercial interest of the United States these days has become to allow imports to come in as quickly and smoothly as possible.”
“Cassidy understates the economic benefits. He omits the boost to our pet-cemetery industry — and for its human counterpart, we can only guess.
“Now, you may have missed, in all those impassioned defenses of globalization, the part about uninspected and unregulated food from distant lands showing up, unannounced, for dinner. Yet this was always an implicit part of globalization — at least of the globalization we have today, structured of, by and for business and financial interests. For globalization was never merely about access to bigger markets than could be found at home. It was also about extending commerce beyond the bounds of regulation and unions and meddlesome meat inspectors.”
There you have it…the real problem. Consumers want low prices. We saw this here in Ashe County when the Thomasville furniture factory shut down in West Jefferson. The factory’s cost for an Ashe County worker averaged Thomasville $17 an hour, especially after adding in the $3 million a year EPA environmental costs. In China that wage dropped to 42 cents an hour.
When consumers go to the furniture store, they generally look at the price tag and design, not the stuffing in the couch…nor do they visit the workers in China who cut the wood, screwed it all together and painted the veneer.
Until this mentality shifts, these problems will remain. Yet it is changing. Green and environmental issues are becoming a huge global investing trend.
Take for example the five multi currency portfolios we created and have tracked since November 1, 2006 (eight months).
All five portfolios have performed remarkably well. Yet see how much better the green portfolio, which is invested in shares of companies that are involved in environmental issues, has performed.
Could this be a huge and the most important trend of all in upcoming years?
This means that there is much we as investors can do, both to enhance our portfolio and to help improve the world. We’ll see what else in tomorrow’s message.
Until then may all your food, toys, tires and toothpaste be pure!
We hope to serve you at one of our upcoming courses or correspondence courses.
International Business & Investing Made EZ in North Carolina.
Self Fulfilled Publishing Correspondence Course.
International Currencies Correspondence Course.
Ecuador Travel and Living eletter.
International Business Made EZ Correspondence Course