China sourcing safe, but with caveat

By Kirby Chien - Analysis

BEIJING (Reuters) - China has been chastised for selling shoddy and unsafe goods to the world, a criticism that foreign executives say does not reflect the vast majority of goods being produced in the country.

China became the world's third-largest exporter by producing quality products cheaply, with Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), the world's largest retailer, buying about $18 billion worth of goods from China a year.

But foreign executives with long experience in the country know that quality in China means putting in place a comprehensive system of checks and monitoring, and taking the responsibility to constantly review those procedures.

"We remain just as committed to this market," Ian Duffy, Asia Pacific president for furniture giant IKEA, told the Reuters China Century Summit.

"We feel as a retailer we are responsible for the quality of goods we offer to our customers," he said. "It is our job."

In terms of purchasing volume, Chinese factories supply about 19 percent of the global product line at IKEA, which has forecast sales of nearly $27 billion this year.

China's manufacturing prowess took a further blow this week when Mattel Inc (MAT.N: Quote, Profile, Research, Stock Buzz) announced a third product recall, adding to the millions of China-made toys the world's largest toymaker had already recalled due to possible excessive amounts of lead and other potential dangers.

Given China's large market and vast number of quality producers, however, the safety scares are not expected to undermine its status as a global supplier.

Starbucks Corp (SBUX.O: Quote, Profile, Research, Stock Buzz), the world's biggest coffee-shop chain, said this week it planned to source coffee from China for the first time as the mainland is expected to become its biggest overseas market.

European plane-maker Airbus (EAD.PA: Quote, Profile, Research, Stock Buzz) said it wants to source more parts from China -- as much as $400 million by 2015, compared with $60 million in 2007.

"The Chinese aviation industry now has the capability to be a world-class supplier," said Airbus China President Laurence Barron. "In aviation, you cannot compromise quality. You just can't take the risk."

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Beijing's awkward and sometimes prickly response to criticism on product safety was initially to blame importers for confusing standards and its own local officials for lax controls, and then finally to declare war on tainted food, drugs and other products to burnish its battered image.

While U.S. consumers have benefited greatly from China's cheap exports, the relentless pressure to push prices ever lower may be at a tipping point.

"If a price seems too good to be true, it probably is," said Dwight Nordstrom, chairman of electronic components maker Pacific Resources International.  Continued...