Problem Nations: China and Russia Not Quite Ready for Modern World

In China, problems with toxic food, medicines, clothing, and other products continues.

Since March, exports ranging from contaminated pet food to toothpaste containing an industrial solvent and toys coated in lead paint have been recalled from Britain, America, Australia and Japan.

Under intense pressure to salvage the country's reputation, the government was forced to concede last week that China has "deep-rooted" problems with food and product quality and safety. In response it launched a four-month-long "special war" against shoddy and dangerous products, aimed particularly at the agricultural, pharmaceutical, food and toy sectors.

...Zhou Qing published an exposé of China's poor food quality, What Kind of God, earlier this year.

Mr Zhou's book details an appalling catalogue of abuses: pigs pumped full of steroids, fish farms that use contraceptives as feed, soy sauce made from fermented human hair and pesticide-tainted vegetables all feature in the book, which he says has been suppressed by the authorities.

He believes China's food safety problem is the result of corruption. "The only way food safety is going to be improved is by getting rid of the corrupt officials," he said.

...Nor is it always bribery that makes officials turn a blind eye. Promotion prospects often depend on the economic performance of the regions they run, and some welcome factories that make fake or poor quality goods, so long as they provide jobs and pay taxes.

Telegraph

Poisons from China are giving Chinese exports a bad name. Russia's main export is energy, and Russia's Gazprom is giving the Russian energy industry and energy exports a bad name.

...Western governments have become increasingly wary of Russia's reputation as a reliable energy source as Putin has moved to curb democratic freedoms ahead of next year's elections.

...Britain remains especially wary following the experience of BP, whose TNK-BP joint venture agreed in June to sell its stake in the eastern Siberian gas field of Kovykta to Gazprom for up to £450m, after being accused by Russian officials of breaching the terms of its licence by failing to produce enough gas. This came after Shell and its Japanese partners were forced to hand over a controlling stake to Gazprom in the Sakhalin-II project in the Russian far east, after being accused of violating environmental clauses in the licence.

...because of a combination of inefficiency and a chronic lack of investment, gas production is stagnating while domestic demand is growing, and Gazprom is obliged to meet its profitable export commitments to the West. The company is already having to branch out to the central Asian republic of Turkmenistan to help it meet demand, but that country too is suffering from under-investment problems. At the same time, Gazprom is subsidising prices to Russian consumers, meaning that it can barely cover its costs domestically. It has been ordered to hit its home users with a 15 per cent price rise.

If – or when – push comes to shove, who will Gazprom punish in order to maintain energy security for its lucrative Western customers? In the run-up to parliamentary and presidential elections, there is no question of Gazprom cutting off supplies in Russia.

...Gazprom recognises that it has a problem with its image as the neighbourhood bully. It has suffered from its association with the Kremlin, accused of an over-aggressive foreign policy that has seen Russia plant a flag on the seabed of the Arctic in pursuit of its claim to presumed vast amounts of mineral deposits, prompting talk of a "new Cold War" with the West.

...The company, which owns 17 per cent of the world's known gas reserves, is locked in an embrace with President Vladimir Putin's government. The state holds a stake of just over 50 per cent, and the Gazprom chairman is a deputy prime minister, Dmitry Medvedev, tipped as a possible successor to Putin when the President steps down next year. The board, and its chief executive Alexei Miller, one of Putin's former associates from St Petersburg, is totally loyal to Putin. Not for them the fate of the businessman Mikhail Khodorkovsky, the oligarch who paid for his independence by losing his company – Yukos, once the largest oil firm in the country – and ending up in a Siberian jail serving a nine-year sentence on charges of tax evasion and fraud.

...With a current market value of more than $300bn (£150bn), Gazprom is the world's third-largest corporation, after Exxon Mobil and General Electric Gazprom's chairman estimates that the company's market value will quadruple in the next 10 years, making it the world's most valuable company.

Independent

Neither the Russians nor the Chinese are quite ready to join the civilised world of developed nations. Overtones and reverberations of their totalitarian pasts prevent the type of governmental and infrastructure reforms that are necessary.

Still--money talks. Governments of both nations carry considerable clout internationally, as a result of natural resources (Russia) and enormous export income (China). But anyone who is brash enough to make long term predictions about the fate of either country should take into account their dark sides--the downside potential.