By on December 6, 2012

Usually, China gets accused of copying from America. This time, U.S. lawmakers will itch to copy a new Chinese law that comes in effect on January 1. Stealing this idea could help solve the current cash flow problems in Washington, and could provide a happy ending to the DC fiscal cliff-hanger. It also could provide an elegant way to eliminate disagreeable competitors. Car companies would not like it at all.

China’s new Administrative Regulations on the Recall of Defective Automobile Products, Number 626, were signed into law on October 22, 2012 by China’s outgoing premier Wen Jiabao. Previous rules provided for slaps on the wrists in the amount of $5,000 max if an automaker refused to recall defective vehicles. The new law raises the fine to $32,000, still bupkis compared to the $16.4 million an ignored recall could cost stateside. But wait, there is more, much more:

Egregious acts, such as failure to stop producing, selling, or importing defective automobile products; concealing defect information; and failure to implement a mandated recall can become extremely costly. In that case, says Article 24, China’s Product Quality Supervision Department shall impose a fine of “more than 2% but less than 10%” the value of the affected goods.

Let’s run the numbers: The gas pedal, floor mat, and steering rod affairs did cost Toyota $16.4 million each, for a total of $50 million (including $800,000 for legal costs…). According to published information, the three recalls affected 8.7 million units. Using an average price of $30,000 per unit, the matter would have cost … $26.1 billion under the new Chinese law.

Oooops.

In 2010, lawmakers tried to raise the cap from $16.4 million to $300 million.  That law never made it, but if enacted would have netted the Treasury less than a billion for the aforementioned affairs, still cheap compared what the fine in allegedly low-cost China could be.

There is another provision in the Chinese law that might be even more enticing to certain lawmakers: “In serious cases, the licensing organ may revoke the relevant permit of the concerned party.” Meaning: The company can be fined and kicked out of the country.

“Illegal gains shall be confiscated.”

Interested parties can find the law (in Chinese) here.

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22 Comments on “Kids, Don’t Try This At Home In Washington: China Enacts Draconian Recall Law...”


  • avatar
    bunkie

    Here in New York City there are some of the oldest signs on lamposts which warn of a $350 fine for horn honking. And that’s in 1970′s dollars. Simply enforcing this law would create a budget surplus so large that we could eliminate the City income and sales taxes.

    Also, we have plenty of free parking. You’ll find it where we keep the unicorns.

  • avatar
    wsn

    It’s essentially a tool that the government uses to get money from car makers they don’t like (aka Toyota).

    Would you expect the government would fine GM $26B when something happens? No. The big 3 can produce cars as unsafe as they want (e.g. Exploder that killed 200+) and still not punished. It’s called “democracy”. The workers happen to be voters.

    • 0 avatar
      CJinSD

      Some voters are more equal than other voters, but no voters will be important for long when you look at the number of precincts where Obama claimed over 95% turnout and 99+% of the vote without any action being taken. 19% of black men under 30 voted for Romney nationwide, but in swing districts it was 0%. That’s believable. If CAFE, a permanently weakened economy, and the EPA kill the auto industry, the UAW can be replaced with voter fraud. Hard to say which is worse.

      • 0 avatar
        28-Cars-Later

        “UAW can be replaced with voter fraud”

        It’s already effectively voter fraud when your votes are known to be for sale to the highest bidder. Go back and find a time when a union didn’t trade votes for favors, or a politician not trade favors for campaign contributions.

        This is the problem with “professional” politicians we’ve struggled with ever since it became financially impossible for Mr Smith to go to Washington under his own power.

        One word, term limits.

      • 0 avatar
        PintoFan

        Well, I guess we know what happened to Karl Rove now.

        You guys are a bad joke.

      • 0 avatar
        car_guy2010

        Shouldn’t you be posting on a political hack site somewhere?

        Your Fox-aganda is starting to lower the IQ of this place.

      • 0 avatar
        pdieten

        Fox wouldn’t try to sell something as completely disconnected from reality at anything in that post. This is WorldNutDaily territory here. “News” for people without critical thinking skills.

      • 0 avatar
        corntrollio

        Didn’t realize this place suddenly became Drudge Report. Crackpot central in here. Although, it’s sort of expected when some people here use the word “ChiCom”.

  • avatar
    wsn

    A bit off topic here, IMO, the fiscal issue can be resolved by just one law:

    Donations are no longer tax deductible.

    I mean, when you donate, you need to mean it. Why do other taxpayer need to match for your cause? Not to mention all the exploits that give you $1000 tax back for a $500 junk you donate.

  • avatar
    gslippy

    The way the article describes it, the fines are levied only if the mfr fails to recall the product. In reality, this might have cost Toyota almost nothing.

    Laws like this could be much more damaging for pharmaceutical companies, for example.

    BTW, I wonder if China will enact such laws for their construction and mining industry, which have a much worse safety record than any car mfr.

  • avatar
    nickeled&dimed

    A bit off topic here,
    but Steven Lang narrated Total Recall? What a multi-talented guy. You should have him dub over EVERYONE’s reviews, that would be funny.

    That sort of recall law will have a huge impact on the willingness of outside companies to do business in a country. Maybe China’s potential market (and associated profit) will prevent this from becoming a huge impediment, but I’d guess that this might just be another way of hindering foreign auto-makers advances in the country. I suppose this would still apply to state-owned Chinese car companies… but then the fine goes out of one pocket and into another.

    Oh, and yes, Steven is not the same man as Stephen. Shucks.

  • avatar
    philadlj

    A few points:

    - This is a Chinese law, not an American law.

    - Manufacturers in America would never commit the “egregious acts” you list…Toyota’s recall fiasco scared them straight.

    - While it may be fun to calculate hypothetical fines to Toyota, a company that competes directly with GM, which is still partially owned by the Treasury, it’s also pointless. $26 billion represents just 2.4% of the 2012FY deficit, and it’s just a one-time payout.

    - That payout would only occur if 1) Congress makes the law, 2) the President signs it, 3) it’s the same exact law as the Chinese law, and 4) Toyota decides it feels like committing seppuku just for the heck of it.

    - Suggesting that America would kick out importers who build factories and employ thousands of people here implies that America lacks the sense of self-preservation that has kept it functioning as a sovereign entity for 236 years (147 years since a civil war!). Put simply, we’re not that dumb.

    - “Draconian” suggests unforgiving rules or laws, but you can’t really call a law with this many varying levels of punishment unforgiving, because the punishment is dependent on the egregiousness or the seriousness of the automaker’s transgression. The rise of fines from $5K to $23K for the least serious offenses is hardly Draconian.

    - The acts that make the harsher penalties kick in are acts that would risk the lives of hundreds if not thousands (or millions in China) of drivers, by staying silent while potentially dangerous defective cars ply the roads. Such acts deserve harsh punishment if any automaker is foolish enough to commit them in this post-pedal age…which they aren’t.

  • avatar
    juicy sushi

    It would take some seriously selective prosecution/implementation for this to be a really problematic law. I wouldn’t be surprised if that happened, but I would be entertained, as the potential response from a foreign manufacturer affected by this law could be entertaining if their government then got involved (which they would). Methinks this may be a bit of a legislative paper tiger.

  • avatar
    PintoFan

    If any Western power was going to copy this law, it would be the EU, not the US.

    In any case, changes in consumer protection laws are meaningless in a country where anything can be “fixed” for the right amount of money.

  • avatar
    Dimwit

    Seeing how the models have been doing with NCAP and general market response it would be rich to find one of the imports or JV’s worse than the domestics for non-compliance.

    I have to agree, this wants to be a hidden dragon but it is only a paper tiger.

  • avatar
    Athos Nobile

    ” “In serious cases, the licensing organ may revoke the relevant permit of the concerned party.” Meaning: The company can be fined and kicked out of the country.

    “Illegal gains shall be confiscated.” ”

    The seeds have been planted. It will be then a matter of time.

    What will happen with the IP/designs/license agreement if that clause is enforced? Are they also confiscated?

  • avatar
    daveainchina

    Does anyone else see this as a legal way for the Chinese government to seize the assets of any company they choose?

    “There is another provision in the Chinese law that might be even more enticing to certain lawmakers: “In serious cases, the licensing organ may revoke the relevant permit of the concerned party.” Meaning: The company can be fined and kicked out of the country.

    “Illegal gains shall be confiscated.””

    That part really scares me, with the highly political court in China when it comes to business, I see this as an opening of the door so that if in the future the government doesn’t like a country/company they can just take everything because of the companies “crimes”

    • 0 avatar
      Pch101

      “Does anyone else see this as a legal way for the Chinese government to seize the assets of any company they choose?”

      Of course, that’s what it is. They want the power to seize assets and nationalize the industry as their hearts desire.

  • avatar
    corntrollio

    China has all kinds of draconian laws like this. It’s why foreign companies hire lawyers to use complicated structures to avoid certain liabilities in China. Not much to see here, but companies that opened factories in China should have known what they were getting into.


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