DiligenceChina

Nothing to add on this one. Just go to the NY Times. If you have trouble finding the piece, it’s the one that starts out:

WASHINGTON, June 18 — China manufactured every one of the 24 kinds of toys recalled for safety reasons in the United States so far this year, including the enormously popular Thomas & Friends wooden train sets, a record that is causing alarm among consumer advocates, parents and regulators. The latest recall, announced last week, involves 1.5 million Thomas & Friends trains and rail components — about 4 percent of all those sold in the United States over the last two years by RC2 Corporation of Oak Brook, Ill. The toys were coated at a factory in China with lead paint, which can damage brain cells, especially in children.

But here’s the bit that has the potential to really fry RC2:

Exactly who operates the factories making the Thomas & Friends trains in Dongguan is unclear. While the zone is run by a group of Chinese or Hong Kong suppliers, it also houses an office building that bears the RC2 corporate logo.

We’re not talking about counterfeits, piracy or some endless chain of sub-contractors that obscures normal efforts at due diligence. Someone at the US headquarters wasn’t doing their job – and it’s getting very late in the game to keep saying, “it’s hard to know what’s going on over there”. Chinalawblog or one of the other law-oriented sites can weigh in on the potential liability that RC2 has exposed itself to if this really turns out to be as massive blunder as it seems.

But let’s talk about YOU for a moment. In the past few weeks, Chinese exports have killed puppies, created a lethal public health crisis in Panama and other developing nations, and now they may be endangering American toddlers with one of the most WELL DOCUMENTED AND PREVENTABLE forms of hazardous substances around.

The likely reaction? Four-fold.

1) China really is going to try to put a stop to this sort of heinous, criminal practice. That’s the good news.

2) China – confronted by this latest shameful and high-profile PR bombshell – is likely to bite back where-ever it can. If you run a factory or source material in China and you STILL don’t have a plan for dealing with product safety and due diligence – then I have to ask you just WHAT is going to get you moving? You are just begging for problems on BOTH sides of the trade. The US authorities (and media) are going to be on high alert – and the Chinese enforcement agencies would like nothing better than to implicate some westerner in a dangerous product case.

3) Media and internet controls are going to get stricter and uglier. We don’t kill the messenger in China – but we do our best to shut him up. Look for data flows out of China to get patchier – and those of us in China might start seeing more 401 errors when we look for our trusty blog postings.

4) Congress and all the electoral hopefuls are going to have no choice but to make hay on this. It’s Thomas the Train, for heaven’s sake. The implications are so awful that the middle of the road just shifted WAY to the right.

China has maneuvered itself into a very touchy PR situation, and they are likely to go into traditional ‘damage control’ mode. That usually means circling the wagons and looking for a bigger (or at least balancing) villain. This has the potential to get a little bumpy.