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What Can the Chinese Manufacturing Industry Learn From the Volkswagen Scandal?
 NO. 42 OCTOBER 15, 2015

Volkswagen CEO Martin Winterkorn resigns on September 23, taking responsibility for the German carmaker's rigging of U.S. emissions tests in the biggest scandal in its 78-year history (163.COM)

Some Chinese citizens are indignant over the Volkswagen scandal, not because the company has published false emission data but because they and Volkswagen have the same imaginary enemy--the United States.

The Volkswagen scandal has evolved into a somewhat of a tripartite saga in China. At the scandal's outbreak, many Chinese did not quite grasp the problem because in China, people cannot enjoy the diesel equivalent that Volkswagen and cars built according to European standards do. While people were reading articles analyzing the differences in environmental protection standards between European and U.S. cars that run on diesel and gasoline, analysts tried to tally up fines. These Chinese were gloating.

However, many Volkswagen car owners in China began questioning whether or not Chinese drivers have also fallen victims to poorly implemented standards--the United States may have slapped a heavy fine on the German car company, but how clean has Volkswagen's record been in China?

Some Chinese consumers have taken to researching and reviewing quality reports on Volkswagen cars in China in recent years. For example, in March 2013, CCTV revealed that Volkswagen direct gearboxes were defunct, and the company had to recall 384,181 cars with defective gearboxes as a result.

Other Chinese research enthusiasts brought up other violations of their country's environmental safety standards on the part of foreign car companies. For example, Beijing Hyundai Motor Co. Ltd. was fined 1.35 million yuan ($211,931) by Beijing environmental protection authorities for failure to comply with the municipality's emission regulations in the production of a sport utility vehicle. Beijing Hyundai was the first auto company fined for violation of environmental protection standards in China, but the fine was of a lesser magnitude than that which Volkswagen may suffer in the United States. Where, then, is the protection for China's consumers?

The situation has ultimately undergone some dramatic twists and turns. As the scandal develops, it is having increasingly dire consequences for Germany's economy--and that of Europe by association. Germany's brand used to represent credibility and high quality, but now, its image has taken a severe beating.

A contention that pops up with increasing frequency is that this scandal is a conspiracy. It's all too convenient that the United States has chosen to bring this incident to light now, connecting the Volkswagen scandal with the Toyota incident a few years ago.

In 2009, the National Highway Traffic Safety Administration, the Department of Transportation and the National Aeronautics and Space Administration of the United States conducted an intensive investigation into Toyota, leading the public to believe that there were fatal defects in the electronic systems of Toyota cars and plunging the automaker into a crisis of consumer confidence.

In February 2011, the U.S. Department of Transportation published the investigation results, admitting that no defects were in fact found in the electronic systems of Toyota cars. But after the incident, General Motors resumed its place at the top of the global auto market, toppling Toyota.

Currently, China-EU relations are in good shape, with frequent contact being made between the two sides. Benefiting from its sales performance in China, Volkswagen became the world's largest auto maker by sales volume in the first half of 2015. But now, the United States has allegedly dealt the same deadly blow to a German company that it formerly inflicted on a Japanese company.

By the end of the first half of this year, the market value of Volkswagen had reached $75 billion. If the scandal persists, the results could have serious consequences for the company.

However, the theory of conspiracy cannot change two painful facts: China still has a long way to go in protecting the rights of its consumers, and the manufacturing industry in Germany will inevitably suffer crippling repercussions.

The quality standards of the Chinese manufacturing industry are not widely acknowledged across the global market; therefore, China must learn from the developed markets in protecting consumers' rights.

When faced with such accusations, Chinese companies often describe the surrounding circumstances as a "conspiracy." The German Government, however, has never tolerated such scandals, because they clearly know this is the only way to redeem the reputation of their country's brands.

Whether the conspiracy theory is grounded in reality, it cannot help consumers and manufacturers win more respect, nor can it establish--or reestablish--the reputation of a brand. To refute this theory, the most powerful method is to focus on product quality above all other considerations.

This is an edited excerpt of an article written by financial commentator Ye Tan and published in National Business Daily

Copyedited by Kylee McIntyre

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