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Viewing cable 08GUANGZHOU146, Product Safety Testing, Booming Business in South China
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
08GUANGZHOU146 | 2008-03-10 08:08 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Consulate Guangzhou |
VZCZCXRO0018
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0146/01 0700808
ZNR UUUUU ZZH
R 100808Z MAR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6959
RUEHOO/CHINA POSTS COLLECTIVE
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
UNCLAS SECTION 01 OF 03 GUANGZHOU 000146
SIPDIS
SENSITIVE
SIPDIS
STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION RICH O'BRIEN/INTL
PROGRAMS
STATE PASS USTR CHINA OFFICE
STATE PASS HOMELAND SECURITY COUNCIL
STATE PASS IMPORT SAFETY WORKING GROUP
E.O. 12958: N/A
TAGS: ETRD EIND TBIO ECON PGOV CH
SUBJECT: Product Safety Testing, Booming Business in South China
REF: A) 2007 GUANGZHOU 887; B) 2007 GUANGZHOU 1298; C) 2007
GUANGZHOU 1249
(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.
¶1. (SBU) Summary: Business is booming for product testing firms in
south China. With heightened awareness of product safety risks
among manufacturers and stricter enforcement by Chinese authorities,
testing firms anticipate continued rapid growth and in some
instances are literally working around the clock to meet demand.
Chemical and safety testing remain the firms' largest offerings;
they are adding new services to further improve quality, generate
new business, meet the challenges of competing global safety
standards, and enhance their understanding of potential risks posed
by innovative and untested products. Even as the role of testing
companies increases, executives reiterated that ultimate
responsibility for product safety remains with importers. End
summary.
Product Testing Industry Sees Rapid China Growth
--------------------------------------------- ---
¶2. (SBU) Last year's toy and other product safety-related recalls of
Chinese goods (ref A) substantially increased orders for chemical
testing on consumer products at south China's major third-party
testing companies. Managers at Intertek, TUV Rheinland,
Underwriter's Laboratory (UL), SGS, and Centre Testing International
(CTI) all told us recently that they had seen impressive revenue
growth in 2007. Executives from U.S. firm Intertek said post-recall
testing revenue increased by RMB 50 million (approximately US$7
million) in late 2007, requiring laboratory staff to work three
shifts around the clock.
¶3. (SBU) Third-party product testing has been an important industry
in south China since the area's manufacturing boom began, but growth
has taken off in the last 2-3 years. An executive from TUV
Rheinland, China's sixth-largest testing firm, told us there are
200-300 product testing firms operating in China. He said
multinational testing firms number approximately 30-40, occupying
most of the industry's top spots. Chemical testing of consumer
products (primarily for compliance with the European RoHS standard
and testing for other hazardous materials) and safety testing of
household electronics and appliances are the most important sources
of revenue, but testing firms reported a growing customer interest
in environmental and automobile testing that was not common in China
until very recently.
SGS - Industry Leader
---------------------
¶4. (SBU) SGS is the largest product testing firm in China, employing
5,000 employees here out of a global workforce of 43,000.
Executives at the Swiss firm told us they had seen 15-percent growth
in their China operations in 2006. Most testing firms acknowledge
that SGS controls the largest market share for RoHS and other
chemical testing in China. However, the firm's managers told us
they earn more revenue from site inspections, consisting of factory
visits and randomized quality testing, as well as pre-shipment
inspections at ports and other logistics facilities. SGS executives
also reported that fuels and minerals testing are rapidly expanding
at key Chinese ports where the bulk of such materials are imported.
UL - A Different Model
----------------------
¶5. (SBU) Chicago-based Underwriter's Laboratory (UL) takes a
different approach to the product testing market. The non-profit
corporation controls the largest market share for safety testing of
consumer electronics and household appliances. Its business model
differs from other companies; it primarily sells licenses to
affiliated laboratories and certifying lab results for testing
performed at each site (currently more than 50 different
UL-certified labs in south China alone). Most UL-certified products
are destined for North America. UL has only 7,000 employees
worldwide with just 500 in China -- less than half the size of many
GUANGZHOU 00000146 002 OF 003
of its multinational competitors. However, it has doubled its south
China workforce to 175 in the last year. Executives at UL said that
although competition among testing firms is increasing rapidly, the
market is also growing so quickly that there is ample room for each
company to continue growing with it.
CTI - China's Champion
----------------------
¶6. (SBU) Centre Testing International (CTI) is widely regarded as
the largest Chinese product testing firm, and also the youngest firm
among market leaders here. Founded in late 2003, CTI has grown
rapidly to more than 1,200 employees working at offices in major
cities and ports throughout China. Vice President Paul Nie pointed
out that many of CTI's executives have strong backgrounds in product
testing, many having worked previously in multinational testing
firms.
¶7. (SBU) CTI's Clients include several major multinational
companies, even as it seeks to leverage its local-company status and
attract more local exporters to purchase testing services. However,
Nie emphatically denied that the firm had any investment from the
Chinese government or other direct links to the authorities. CTI
executives seemed intent on burnishing the company's credentials as
an independent third-party testing firm. Multinational firms, by
contrast, were eager to highlight their close relationship with the
government. Intertek executives noted that their firm was preparing
to enter a joint venture with the Guangdong branch of China
Inspection and Quarantine Service (CIQ).
Challenges of Differing Regulatory Standards
--------------------------------------------
¶8. (SBU) Variations among regulatory standards continue to pose
difficulties for manufacturers, exporters, importers and everyone
involved in the supply chain, according to executives at all five
testing firms. Compliance with competing toy safety standards in
Europe and North America are challenging for anyone involved in that
industry, causing many toys to be tested twice for the same types of
safety concerns such as drop height or lead content. Textiles were
another common concern, with firms complaining about many unique
U.S. quality and safety standards that differ from ISO standards
commonly accepted in other countries. Several of the testing
companies described participating in standards development with
national governments and international standards bodies like ANSI
and IECEE, clearly hoping to help move toward more unified global
standards.
Industry Cooperates to Avoid Duplication
----------------------------------------
¶9. (SBU) Executives at several firms highlighted the CB Scheme
(Certification Bodies Scheme), managed by a subgroup of the
International Electrotechnical Commission (IEC) as an important
industry initiative to reduce duplicate testing. Focusing mostly on
standards for electrical products and components, the CB Scheme
would make it easier for certified testing labs to voluntarily
recognize test procedures and data from competitors, reducing costly
test duplication as manufacturers share information across
laboratories and national borders. As products are introduced to
new markets or requirements change, new product testing can
supplement prior test results, without the need to duplicate those
tests.
Testing Companies Expand Offerings
----------------------------------
¶10. (SBU) Testing company executives said innovation in the industry
will continue with the development of new technologies and
methodologies and the emergence of new safety and quality concerns.
Intertek was recently named as a third-party auditor for Wal-Mart
Global Procurement's pre-screening of potential manufacturers (ref
B). TUV Rheinland described a new proprietary software system
designed to help firms improve supply chain security by tracking all
components and materials included in products at each stage of
production and sales. More companies are ordering testing to check
the advertising claims of competitors, according Intertek's Francis
Yuk. Firms found to be making false claims can be significantly
GUANGZHOU 00000146 003 OF 003
penalized under U.S. Federal Communications Commission
truth-in-advertising regulations. Performance testing is also a
major growth area, with manufacturers seeking to test both their own
products and their competitors' products, as companies strive to win
more sales in diverse global markets.
Safety: Risk and Responsibility
-------------------------------
¶11. (SBU) Despite the best efforts of testing companies to ensure
products meet the safety and quality standards of importing
countries, executives also stressed that the burden of proof and
responsibility for failures remain entirely with the importer.
Testing company executives pointed out that standards cannot always
anticipate safety threats introduced by innovative products, as in
last year's Aqua Dots recall (ref C). Instead, manufacturers,
importers and testing firms must do their best to anticipate and
manage risks, which sometimes includes seeking additional
information from outside experts and testing bodies when an
innovative product seems to meet existing guidelines but might still
pose a previously unidentified risk to consumers.
GOLDBERG