Yet, the picture remains, so far, less than perfect. These steps were encouraging, but anomalous. While improved regulatory capability-up-to-date product standards, abilities to monitor, test and punish-is a necessity and can go a long way toward the mitigation of product-quality issues, it is generally less effective when dealing with rogue businesses whose intentions are to evade detection and make a quick buck. Shutting down a toxic plant after a scandal is one thing. Using bureaucracies for effective preventive measures is another.

Cracks in the Mortar

THE CHINESE government realized that simply creating an array of institutions was not enough-the bureaucracy must also function well, something especially difficult to achieve in developing societies. From poor interagency cooperation to a lack of resources and sheer logistical difficulties, troubles remained. Herein lies the crux of the problem for regulators and consumers in the United States and elsewhere when it comes to the quality of products imported from abroad. While China has established various regulatory agencies, enforcement has not been optimal. Regulatory authority is now fragmented among a multitude of government agencies-each mindful of its own turf and interests-that often fail to work together, especially at the local levels. The main regulators of food safety, for example, include the Ministries of Agriculture, Commerce, Health and the General Administration of Quality Supervision, Inspection and Quarantine; the General Administration for Industry and Commerce; and the State Food and Drug Administration (SFDA). Failure among the regulators to coordinate and cooperate with each other is believed to have contributed to the deadly milk-powder scandal that came to light in 2004.

Making matters worse, the interests between central and local authorities often diverge. In particular, lower-level authorities may be more tolerant of counterfeiters and other dishonest businesses in their jurisdictions simply because these businesses generate employment and tax revenue. In the words of a Business Week reporting team: "Even if Beijing has the best intentions of fixing problems such as undrinkable water and unbreathable air, it is often thwarted by hundreds of thousands of party officials with vested interests in the current system."

Partly to mitigate such divergence, the Chinese government has in recent years promoted the hierarchical integration of regulatory administrations, especially within the provinces. But, as pessimists argue, "China has built a bureaucratic machine that at times seems almost impervious to reform."

China's sheer scale and vast regional disparities present major challenges, too. While the major cities can deploy more personnel, resources and technology to enhance regulatory supervision, this is far from the case in outlying areas, where many of the small businesses, including counterfeiters, are often located.

Last but certainly not least, corruption has plagued some of the regulatory agencies, both in the headquarters and in the localities. Under Zheng Xiaoyu, the former head of the SFDA, and his close associates, some pharmaceutical companies were able to obtain a large number of new drug approvals by submitting fake data and bribe money. Zheng was executed for bribe taking and dereliction of duty in 2007.

A history of Chinese regulatory developments in the reform era is thus one about the struggle to curb regulatory corruption and deal with and overcome various institutional flaws. As China's regulatory agencies contend with internal conflicts and cope with external pressures, are we sure they'll be able to effectively address their product-safety and -quality problems?

Learning from Experience

THOUGH THIS sounds like a story with an unhappy ending, it is that Chinese ability to turn desire into action-which may have led to these problems-that can also provide the solution. For the Chinese government does possess the ability to crack down when necessary. Two other tales in which the Chinese government had to take sharp corrective action over the past decade-civil aviation safety and doping in sports-are optimistic.

In the 1990s, China had one of the worst passenger aviation-safety records. A string of air disasters tarnished the country's international image and even led the U.S. Federal Aviation Administration (FAA) to consider restricting Chinese flights. This threat of international ostracism apparently prompted the Chinese leadership to take decisive action. In 2002 to make safety the priority, Beijing replaced China's top aviation regulator with Yang Yuanyuan. Under Yang, the Civil Aviation Administration of China (CAAC) introduced a broad range of reform measures into the management of airlines and airports and focused CAAC's mission on safety. Most importantly, it insisted on rigorous safety compliance by companies and pilots. CAAC was also eager for foreign assistance. It rewrote China's aviation regulations with help from Boeing and the U.S. FAA. It even enlisted specialists from the International Air Transport Association to audit Chinese airlines and release their findings. All this helped make the Chinese aviation industry a "global leader in air safety" with "the best safety performance in the world" between 2004 and 2007.²

A similar story of cheating, international ostracism and then successful reform finds its narrative in Chinese sports. While the reform era enlivened Chinese athletics, the ever-rising stakes for winning also increased the temptations for sportsmen and their coaches to cheat. Though cheating has been a worldwide phenomenon, in China, the decentralization of sports governance-which stimulated competition among the localities for medals-coupled with a rudimentary antidoping institutional environment offered especially fertile ground for the corrupt behavior of doping and match fixing. For a while, these incentives propelled China's rapid ascent as a global sports power, but it was only a matter of time before some of the athletes became a national embarrassment.

Chinese swimmers hauled in record amounts of gold medals in the 1990s. Soon after, China landed at the center of a series of high-profile doping scandals. These doping scandals-and the unprecedented number of Chinese athletes testing positive-cast an especially dark shadow on the meteoric rise of the Chinese women's swimming team. Much as the recent spate of product-quality and -safety problems has dented China's image as a manufacturing power, cheating in sports gave rise to the view that China would seek to win by whatever means.

Though at first Chinese officials sought to explain away the doping scandals as the work of a few misguided individuals, when international pressure mounted, even threatening to exclude China from certain sports, Beijing knew it needed to address the issue. Salvaging the country's tattered reputation and regaining the world's confidence mattered.

In cooperation with international sports organizations, Chinese sports authorities undertook a multipronged approach to prevent the recurrence of doping embarrassments, establishing the China Anti-Doping Commission, strengthening antidoping laws and regulations, enhancing testing facilities and capabilities, and improving oversight of local teams. Meanwhile, going beyond international requirements, China began enforcing the "sudden death" treatment: swimmers who test positive for steroids, including first-time offenders, are banned from competition for life.

All this worked. China was transformed-a near pariah in the late 1990s, model performer at the 2004 Athens Olympics. Not a single Chinese athlete tested positive for drugs in Greece, unlike several other major sports powers. But this cleansing did have an impact on China's medal count. Their swimming team dominated in the ‘90s, but they only won one gold medal in 2004. No matter, the value of that lone swimming gold to China's reputation: priceless.

Building Better

SOMETIMES A strong party-state is a very good thing. The successful corrective measures with respect to aviation safety and antidoping in international sports are undoubtedly encouraging. China is able to comply with international rules and norms. Recognizing that China's reputation was at stake, China's leaders took on serious reforms and tough regulatory actions. Unlike in many other developing countries, China, with its Communist Party, has the capacity to get things done when it matters.

Efforts to overcome corruption and cheating in the wake of opening up the Chinese market solved some problems, but created others. Though Chinese officials openly express their annoyance at Western media reports they feel exaggerate the magnitude of China's product-safety problems, they do realize that the reputation of "Made in China" is imperiled-and they care. As Vice Premier Wu Yi noted, bad press had caused "serious damage to China's national image." The government saw the writing on the wall and has taken a new wave of steps to improve watchdogging.

To help fix the problems plaguing regulatory agencies, like fragmentation and poor policy coordination, the State Council established a leading group on product quality and food safety in 2007. The leading group, headed by Vice Premier Wu Yi, is comprised of representatives from fifteen government agencies. And the Chinese government is putting muscle into policy implementation. Building on its long-standing efforts to improve market order, the Chinese government launched a nationwide campaign in August 2007 to investigate and fight the manufacture and sale of fake or substandard food, medicine and agricultural products. By October, the Chinese government had arrested 774 people in the crackdown. As of late November 2007, authorities had also closed down nearly eight thousand slaughterhouses for operating without licenses or for failing to meet government standards. For toy manufacturers blamed for producing toxic products, the Chinese government has suspended their export licenses-the kiss of death for an export business. Foshan Lee Der Toy Co., one of the first to be blamed for Mattel toys containing lead, was shut down. The owner committed suicide.