Accessing Chinese suppliers for manufacturing purposes presents a unique and sometimes difficult set of challenges. The county’s entry into the western industrial complex in 1979 was its’ first foray into global competition. Since then, it has focused a large percentage of its national energy on growing itself into a valued international manufacturing hub. While that has meant immense profit for both Chinese suppliers and their international contracting partners, it has also created dangers that threaten citizens and the Chinese environment. The two explosions that have rocked China’s manufacturing sector in the past two weeks are instances of what can go horribly wrong when standards of any kind are disregarded.
Both factories, one in Tianjin, and the other in Shandong province were involved in manufacturing and/or storing highly toxic chemicals. In April, a third blast at the Dragon Aromatics factory in Fujian province, injured 19 workers and four firefighters. That factory manufactured highly toxic paraxylene, a chemical used to make polyester. It was the second explosion at the Fujian factory in less than two years. All three blasts were sited within one kilometer of residential housing, a clear violation of China’s standards for locating industrial factories. The impact of the explosions on nearby residents was deadly for some and caused critical injuries or significant loss of property to hundreds of others. The explosions also seriously disrupted the supply chains for international producers who access China’s wholesale supply chain sector.
The global chemical manufacturing industry has grown immensely in the past 15 years, playing a part in the creation of goods and materials that impact every aspect of life. Although some chemicals are marketed directly to consumers (soaps, detergents, etc.), over 70% of all chemical are used in processes to manufacture goods. China’s chemical manufacturing industry has grown in response to the world’s demand for its inexpensive, highly lucrative production capacity. At the same time. China’s regulation of the industry (and China’s ability to regulate the industry) has also grown, albeit not as fast as necessary to avoid the circumstances that caused these blasts.
In December 2011, China’s State Council issued Decree 591, the federal regulation of safe management of hazardous chemicals. The rule is intended to cover all aspects of management of hazardous chemicals including manufacture, importation, distribution, storage, transportation, and use. Further, the national law is supported by dozens of ministerial regulations and guidance documents. Overseen by the Ministry of Environmental Protection (MEP), the State Administration of Work Safety (SAWS) and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the law demonstrates how serious the national Chinese government is in bringing its industries up to par with western manufacturers.
For every international producer accessing China’s chemical manufacturing sector, the latest explosions should raise concerns about possible failures of compliance within each separate factory with which they do business, and perhaps in the local or regional administrations as well. These concerns should also trigger a comprehensive review of contracts, contacts and oversight of each current factory contractor to ensure there are no violations that can cause an explosion or any other production line failure. A factory doesn’t need to fail this significantly to be causing serious damage to the supply lines of its contractors.
The complexity of Decree 591 makes it difficult for anyone who doesn’t have expert knowledge or experience in the sector to fully comprehend how it applies to the various aspects of each factory.
Having been a consultant involved in compliance and risk management for over 15 years, I am concerned about a number of issues revealed by these explosions. I’ll have more to discuss next week in part 2 of this series covering how Chinese oversight might be changing in response to these tragedies.
In light of these recent tragedies, now is probably a good time to evaluate the status of your supplier compliance status.
If you would like to know more, you can download a free report “8 Problems Businesses face when sourcing from China here.
This blog was written by Carsten Primdal, an independent consultant who helps businesses that have manufacturing done overseas – especially in China – to 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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