The Hong Kong/Mainland milk powder controversy

A while back, there was a big scandal with contaminated mainland milk powder. In response, Chinese people began going to HK and carrying huge amounts of milk powder back across the border, and reselling it on the mainland. Although the problem is supposedly cleaned up, and there is imported milk powder available on the mainland, people trust the obviously genuine HK powder more.

In response, HK passed a law threatening people who carry more than 1.8kg of milk powder with long prison sentences & huge fines. This would mean that less than 100 USD worth of powder, fairly bought, carried over a border, would completely destroy someone's life.

This has prompted articles like this: http://www.tealeafnation.com/2013/03/from-one-hub-a-view-of-chinas-worldwide-underground-milk-powder-network/

This article has totally misses the point. Importers are heroes, not villains, and the world response to the milk powder issue is a missed opportunity.

_The world should flood the countries around China with high quality milk powder - it saves lives, forces China to improve its regulatory system, embarasses a secretive government, and moves tons of money from China to the rest of the world._

Imagine if the Chinese government banned a vaccine to a deadly disease - someone who makes a living smuggling it in would be a hero! (And although it's slightly off-putting, allowing the importer to profit from it would create a huge incentive to import it, which would save more people's lives within China and drop the price.)

Why do foreign countries resist Chinese purchases of milk powder at all, anyway? They should just take the money and be happy to be replacing poison with good stuff. The article barely mentions the reason - that foreign milk is subsidized.

They're trying to keep the price at an absurdly low level, to keep it cheap for locals. But why can't they just produce more, while keeping some cheap?

Producing more is probably hard because the subsidy has made milk powder companies uncompetitive and they can't ramp up production due to problems with their production system or overregulation which prevents it. It might be that they can only keep the subsidy under certain conditions, or that they have to accept it for all their milk or none. Or it might be that there's so much bureaucracy within these European countries that it isn't worth it. It might even be written into the law that you can't sell milk powder for a high price, and nobody is allowed to refuse the subsidy.

If the legal systems of the other countries were good enough, someone could just start up a new milk powder company, refuse subsidy money, and sell for way more than the subsidized cost - and also not limit Chinese purchase. This would help everyone - babies in China would be saved, and the company would make tons of money.

The exact same thing happens in education: the Chinese product is crap, but it's protected locally from foreign competition, so rich Chinese go overseas to get the foreign version. And overseas, education is heavily subsidized. So what happens? US schools don't put up signs saying "No Chinese allowed" - they just charge them full price and make tons of money, while genuinely helping out the Chinese kid by giving him a better education. Money is taken away from shitty producers (chinese schools) and given to better ones (us schools). That's economics.

Rather than stop this, European countries should use it as a way to pressure China to have better regulations - making Chinese product more trustworthy (which helps Europeans and Chinese alike), makes China more efficient (because it'd be more transparent and fewer bribes would be involved in getting things done, which again would help the whole world). Europe and the world already competes with China in every way now - constantly trying to undercut them in everything they produce, produce higher quality stuff, have better regulatory system which allow more innovation than the soviet style, opaque chinese standard system. The west even tries to get rich Chinese to move overseas, stealing their abilities and production. All this pressure makes China improve itself, become more modern and open, and actually care about the internal quality of life for its citizens. The milk powder issue is just another way we can use economic competition to improve China & do a moral good.

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3/22/2013 9:16:05 PM
Contact: ernestfrench@gmail.com
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