After the explosions that rocked China’s manufacturing sector last month, the country’s State Council ordered inspections of hundreds of facilities that handle dangerous chemicals and explosives. More than 100 chemical firms were told to suspend operations or shut down completely because the inspections turned up safety violations. The factories are located across seven provinces, including Hubei/Beijing, Anhui and Zhejiang provinces. President Xi Jinping has publicly vowed that authorities “should learn the lessons paid for with blood.”
The “safety violations” that were uncovered probably fell within three categories: regulation, implementation of regulation, and training of staff. China has developed significant regulations around the handling and management of hazardous chemicals. In 2014, the State Council released the revised “Decree 591”, which regulates the transportation, importation, production, storage, import, use and sale of hazardous chemicals. Deemed the “most complex chemical legislation in China”, Decree 591 includes 102 articles, dozens of supporting measures and numerous national standards for the law. Clearly, there are many Chinese chemical plants that have yet to implement the revised standards fully. The recent explosions and subsequent plant closures are a testament to that fact.
However, China has seen problems like these before, in its coal mining sector. According to the Beijing Review, in the early 2000’s, China’s coal mining industry experienced the exact type of injuries and deaths that are now plaguing the chemical manufacturing industry. In response to having the world’s deadliest coal mines, China launched an industry-wide overhaul in 2008. Over the next two years, it closed a large number of mines with demonstrated safety violations and made serious efforts to sever ties between state officials and mining industry bosses. Subsequently, the number of mining deaths in the country have gone down considerably since 2010.
The journal goes on to identify several factors that may have played a part in the chemical industry failures that are reminiscent of the mining industry concerns, notably:- inaction of related government departments;- failure of duty on behalf of some officials; – flawed laws, and- a lack of corporate social responsibility.
The Associated Press published an article on August 21, 2015, that appears to validate at least some of the Beijing Review’s concerns about the true causes of chemical industry explosions. It appears that the owner of the Tianjin site is on the board of directors of the company that is also investigating the disaster. More investigation there is certainly forthcoming.
The challenge for overseas buyers is clear: how to move forward with existing or prospective Chinese manufacturing contracts in light of the high potential for disastrous failures? In my 15+ years working with Asian manufacturers and the Chinese in particular, I’ve seen many safety and other violations that appropriately caused my clients to decline to work with those factories. But I’ve also seen more Chinese suppliers invest significant time and energy in correcting violations, and eliminating the potential for failure or disaster when notified of safety or other concerns and given the chance to address them.
And I’m encouraged by President Xi Jinping emphatic announcement that the State Council would punish those responsible for the recent devastating blasts. In just May of this year, China announced its “Made in China 2025” initiative, which is a blueprint for China to achieve manufacturing quality standards equal to those of Germany and the United States. The plans’ guiding principles emphasize quality over quantity and optimize the structure of Chinese industry so it can occupy the highest parts of the global production chains.
If the Beijing Review’ s account of the transformation of the Chinese mining industry is accurate and true, then China has at least once demonstrated its capacity to make significant changes in an industrial sector that, while lucrative, was too dangerous to be left unfettered. The “Made in China 2025” program now gives it the blueprint it needs to make the same rehabilitative effort in the manufacturing sector. To discuss how your Chinese supply chain factories are faring in light of these events, call me today.
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This blog was written by Carsten Primdal, an independent consultant who helps businesses that have manufacturing done overseas – especially in China – minimise supply chain risk.Drawing on years of on-the-ground experience and a strong understanding of the cultural and commercial context, Carsten is passionate about helping his clients gain greater control over the risks most companies face knowingly or unknowingly.
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