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The Unlikely New Champion of Consumer Rights: China

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The Unlikely New Champion of Consumer Rights: China

By Ben Halder

WHY YOU SHOULD CARE

From luxury handbags to beef mince, Chinese companies are upending the country’s legacy of producing knockoff goods — for a cost.

By Ben Halder

  • For decades, China has been notorious for knockoffs and adulterated food.
  • A new generation of wealthy Chinese are willing to pay extra for technology-based authentication systems that allow them to track goods from their source.
  • It’s spawning a new industry of companies and platforms selling these services at a premium — and the pandemic has given them fresh impetus.

The cattle grazing in the lush fields outside of Tongliao in the Chinese autonomous region of Inner Mongolia would hardly appear to represent the changing face of consumer behavior in the country. But Kerchin Cattle Industry, the meatpacker that operates this farmland, is a pioneer in integrating new technology into its supply chain to gain customer confidence. 

Kerchin’s customers can use a mobile app to scan packaging and discover everything they might want to to know about the origin of the product: from what the cow was fed and its age and weight at slaughter to the identity of the vet who cared for it. It’s all done through blockchain technology that the company adopted for its supply chain in 2017.

“I don’t need to know the name of the vet that cared for the animal,” says Amy Chen, a Beijing real estate agent and mother of two. “But knowing that level of detail is available gives me greater confidence in the product I buy, and that’s something I’d pay for.”

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Chen is not alone. For decades, China has been notorious for knockoffs and tainted foodstuffs, the latter of which have even led to public health crises. Now a growing number of companies are trying to upend that reputation by tapping into demand from high-income Chinese consumers willing to pay extra for products whose quality they can trust. That demand is only expected to grow due to the pandemic-driven increase of concerns about public health and food safety.

Chinese consumers are increasingly aware of the authenticity and origin of the goods.

Ashley Dudarenok, founder, Alarice

Companies are using QR codes, mobile apps and third-party services to build consumer confidence in the origin and authenticity of the goods they sell, from luxury handbags to bags of frozen beef mince. The third-party services and the companies they assist, such as Kerchin, are in turn able to charge a premium to consumers.

Ten food and beverage firms have teamed up with e-commerce giant JD and ZhongAn Technology to use blockchain technology to track produce from farm to plate and have it delivered to their door. Meanwhile, Shanghai-based Taeltech is helping firms install radio-frequency identification chips in product packaging. These chips allow consumers to ensure authenticity and track the product’s supply chain.

Other platforms are operating stand-alone third-party services available directly to consumers. Starting at around RMB 50 ($7.60), authentication apps Zhiduoshao and Zhende instruct users to take photos of luxury goods. The photos are then analyzed by in-house experts who determine whether the goods are genuine or counterfeit. These services are particularly popular in China’s maturing secondhand luxury market. Dewu, a platform for sneakers exchange, provides authentication services for consumers.

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“Chinese consumers are increasingly aware of the authenticity and origin of the goods,” says Ashley Dudarenok, founder of Chinese marketing agency Alarice. “[For] secondhand goods such as cellphones and sneakers, consumers will look for third-party organizations to do testing and authentication.”

Consumers are not only willing to pay a premium to avoid the potential dangers of fake products and contaminated food but they are also increasingly in a position to do so. Per capita disposable income in China increased 5.8 percent in 2019. And while the pandemic caused a dip in the first half of 2020, data from the National Bureau of Statistics suggests the figure has recovered quickly, with third-quarter disposable income up 0.6 percent over the previous year.

While consumers are benefiting from these technologies, they’re also proving invaluable to brands. “IP protection comes up in most of the meetings I have with brands who are new to the market … so the tools available are often taken up with relish,” says Tom Griffiths, commercial director at digital agency Verb China.

Legislative changes have also forced this shift. In the face of past health crises — such as adulterated infant formula in 2008 and the widespread sale of tainted meat to KFC, McDonald’s, and others in 2014 — China’s authorities struggled to impose measures to reestablish consumer confidence. In 2019, China’s State Council — effectively the country’s Cabinet — introduced comprehensive guidelines that required local governments to enact stricter supervision over farming practices, food production and supply chains. China’s new e-commerce law, also introduced in 2019, is considerably more structured than previous legislation.

To be sure, despite these legislative changes and greater sensitization among consumers and companies, China’s path toward robust transparency in the sourcing of products faces challenges.

“I feel it is moving in the right direction, but it only works if you trust the technologies and companies that provide the assurances,” says Chen, the Beijing real estate agent, referring to local reports of authentication services falsifying results to boost sales. 

Such reports remain the exception rather than the rule. The company-specific efforts feed into a larger anti-counterfeit campaign by the Chinese government, including through an AI bot that analyzes data to detect sellers who are offering fake goods. Alibaba, owner of e-commerce platforms Tmall and Taobao, reports that it saw a 67 percent drop in problem sales across its platforms in 2018. In addition, the campaign to identify and report rogue traders has led to the closure of almost 4,300 counterfeit-goods workshops in China.

It’s a trend that spans sectors and that’s only going to grow as China’s consumer class becomes increasingly affluent. They’ve tasted better now and aren’t likely to accept a return to a culture of impunity for sellers and manufacturers of fake goods and contaminated food. The world’s second-largest economy might be on its way to developing a new reputation — as a country where consumers can trust quality.

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