Big Trouble in Little China

The Daily Reckoning – Weekend Edition
July 7-8, 2007
Los Angeles, California
byKate "Short Fuse" Incontrera

VIEWS FROM THE FUSE: BIG TROUBLE IN LITTLE CHINA

Industry in the Far East is booming – and of course, the United States has had their hand in helping that boom: in 2006, the U.S. imported 40% of their goods from China.

One of the unfortunate side effects of mass industrialization in a country that is often ill equipped to deal with the burgeoning demand for their goods are serious environmental issues. Case in point: the quality of the water in China.

More and more, it is becoming public knowledge that Chinese factories are routinely dumping waste into the surrounding bodies of water. So much so, in fact, that the Chinese government had to shut off the city of Wuxi’s water supply because blue green algae had infested nearby lakes that provide drinking water, reports a recent Washington Post article.

"Outside of Qingdao, pollutants from nearby liquor and leather factories have turned streams a murky gray," continues the Post. "And in Nanjing, the river that cuts through the city is full of urban trash, such as twisted metal and clothing."

Yet, China is the biggest producer of farm-raised fish and Chinese seafood imports to the United States were valued at $1.6 billion last year – a 193 percent increase from 2001, reports the Department of Agriculture.

But that number may be decreasing, as the FDA recently blocked the sale of five kinds of farm-raised fish from China: shrimp, catfish, eel, basa and dace, due to possible contamination.

To fight the sewage, pesticides (including DDT), and pollutants found in Chinese bodies of water, the farm-raised fish are pumped full of antibiotics to keep the fish healthy, or at least, alive. Unfortunately, what they are treating the fish with has been found, in some cases, to cause cancer in lab rats and may increase antibiotics resistance in humans. Nice.

As these problems have been coming to the surface, scrutiny of Chinese seafood at the U.S. ports that receive them has become more intense. "Back in April, 257 shipments were rejected from China, 68 of which were seafood, reports the NY Times. "Frozen eel contained pesticides, frozen channel catfish had salmonella, and frozen yellowfin steaks were filthy, the records show."

Filthy. Now there’s a good, descriptive word that makes you want to hightail it to the nearest Long John Silver’s.

"In May, Food and Water Watch, a Washington-based nonprofit group found that more than 60 percent of the seafood that was rejected at the border came from China…Of the seafood that was refused at the border, filth was the top listed reason and salmonella was second, with shrimp accounting for about one half of those cases, the report finds."

Of course, these findings are based on an increased percentage of
Chinese seafood shipments inspected…five percent. FIVE PERCENT of these imports were inspected, and that’s what they found. Imagine if they inspected ten percent.

And even with all of these inspections, aggressive Chinese exporters are undeterred…and the problem isn’t contained just to seafood. In addition to using antibiotics, chemicals, and in some cases, herbal Chinese medicines to keep farm-raised fish ‘healthy’, some Chinese exporters have taken to mislabeling products – take April’s pet food debacle, for example.

In this case, it was revealed that the tainted Chinese ingredient that had been incorporated into U.S. pet food and then later made its way into chicken and pig feed wasn’t wheat gluten or rice protein, as it had been advertised, but seriously contaminated wheat flour.

Then, to add insult to injury, the mislabeled, contaminated flour was mixed into fish food in Canada, and then exported to the United States, where it was then fed to farm-raised fish.

"Accordingly, some American fish may be laced with melamine, the industrial toxin whose spread has revealed in startling detail the many ways in which the food chains for pets, farm animals and humans are internationally intertwined," reports the Washington Post.

More below…

Short Fuse
The Daily Reckoning

— The Daily Reckoning Book of the Week —

China Shakes the World: A Titan’s Rise and Troubled Future – and the Challenge for America
by James Kynge

A former bureau chief of the Financial Times in Beijing, Kynge demonstrates how China’s thirst for jobs, raw materials, energy, and new markets–and its export of goods, workers, and investments–will dramatically reshape world trade and politics. China’s appetite, though unpremeditated and inarticulate, has become a source of major change in the world.

Napoleon said, "Let China sleep, for when she wakes, she will shake the world." In the early days of the twenty-first century, China has started shaking the world with its prowess in manufacturing. Not all is rosy, however, because China has serious problems with its environmental resources, severe pollution, and institutionalized corruption within the government, the legal system, the police force, and the media. The question Kynge offers answers to is how the world will cope with China’s extremes of both strength and weakness.

THIS WEEK in THE DAILY RECKONING: Busy with your Fourth of July BBQ and missed an issue? No worries, we have them all for you, below…

Market-Made Shock Waves                                     07/06/07
by Bill Bonner

"When money and credit are free and easy, people become free and easy with them. They begin spending more than they should…and investing recklessly. Eventually, there is a shock…a tipping point…a moment of desperate reality…"

Counting Swans on Wall Street                         07/05/07
by Bill Bonner

"Wall Street cannot really measure risk. It doesn’t know any better than we do when the ‘black swan’ is going to appear."

A Lack of Financial Independence                         07/04/07
by Bill Bonner

"This Independence Day finds Americans less independent than ever before. They count on the Arabs for energy. And they depend on the Asians for money to pay for it."

Collateral Damage in the Subprime Market            07/03/07
by Bill Bonner

"The wheels of Financial Fate may grind slowly…but they grind exceedingly fine. And America’s middle class is beginning to notice."

Middle of the Road Financial Woes                        07/02/07
by Bill Bonner

"Subprime mortgages represent a substantial portion of the entire mortgage market. But it is not just the subprime part that poses a threat. The real problem is that American homeowners have too little money."

———————

FLOTSAM AND JETSAM: BIG TROUBLE IN LITTLE CHINA (cont’d from top)

"More than 40% of recalls by U.S. Consumer Product Safety Commission, including all the toys this year, and 79 percent of toys last year, involved products from China," reports a recent cover story in TIME magazine.

Just this past Thursday, the U.S. Consumer Product Safety Commission announced three recalls; jewelry that could cause lead poisoning, a magnetic building set and plastic castle with small parts that could choke children.

Add this to the banned seafood, the pet food disaster, and the 50,000 boxes of toothpaste that were pulled from shelves in June because of a chemical in them could lead to kidney failure, and we’ve got quite a problem on our hands.

"The list continues to grow of Chinese imports that are dangerous to American consumers," said Senator Richard J. Durbin, Democrat of Illinois. "There reaches a point where I think it’s clear, if China wants to live in the 21st century, then they have to produce to those standards."

So, how do we get these products up to par? Well, China has an interesting way of going about it…they have sentenced a former department head at the State Food and Drug Administration to death.

Yup. On Friday, Cao Wenzhuang was given the death sentence with a two-year reprieve on charges of accepting $307,000 in bribes from two medical companies, and neglecting official duties.

He had acted as secretary to Zheng Xiayu, head of China’s Food and Drug Administration, in the 1980’s. Zheng was also given the death sentence in May for "taking bribes to approve substandard medicines, including an antibiotic blamed for at least ten deaths," reports MSNBC.

"Also," the article continues, " during his tenure as top drug regulator, his agency approved six medicines that turned out to be fake, and the drug makers used falsified documents to apply for approvals."

The death sentence obviously isn’t the answer to our import problem here in the United States – so what is?

The products coming out of China outnumber the U.S. regulators that keep an eye on them, and the FDA only has 1,317 field investigators for 320 ports of entry. And, as TIME reports, "the agency inspects just 0.7% of all imports under its purview, half of what it did 10 years ago.

"Sure, it would be great if the FDA could stamp every import with its seal of approval the way the Department of Agriculture does: meat, poultry and eggs can’t be imported without meeting its standards. But David Acheson, who was appointed the FDA’s assistant commissioner for food protection after the recall of tainted pet food in March, says that kind of monitoring for 16 million shipments of everything from cough syrup to toothpaste would be ‘too complex and cumbersome.’"

And of course, the scrutiny of Chinese imports has many Chinese officials in a huff, citing that increased regulation of their products is nothing more than protectionist measures. Perhaps, to some extent, that may be true…although the fact that their products keep coming in contaminated or unsafe may have something to do with it as well.

The solution then, lies in the Chinese consumer. After all, Americans aren’t the only ones suffering at the hands of these shoddy products. David Zweig, a scholar at the Hong Kong University of Science and Technology say that China’s leaders "know that Chinese people sense they deserve better."

It may be about time they start demanding it.

Editor’s Note: Kate "Short Fuse" Incontrera is the managing editor of The Daily Reckoning. Each Saturday, she also brings you The Daily Reckoning’s Views From The Fuse, a weekly wrap-up of contrarian insights and ideas.

Kate studied literary theory and writing at Towson University and the University of Cambridge. After receiving her degree in English, Kate joined The Daily Reckoning team in 2004.