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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0146/01 0700808
ZNR UUUUU ZZH
R 100808Z MAR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6959
RUEHOO/CHINA POSTS COLLECTIVE
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
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RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 03 GUANGZHOU 000146 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION RICH O'BRIEN/INTL 
PROGRAMS 
STATE PASS USTR CHINA OFFICE 
STATE PASS HOMELAND SECURITY COUNCIL 
STATE PASS IMPORT SAFETY WORKING GROUP 
 
 
E.O. 12958: N/A 
TAGS: ETRD EIND TBIO ECON PGOV CH
SUBJECT: Product Safety Testing, Booming Business in South China 
 
REF: A) 2007 GUANGZHOU 887; B) 2007 GUANGZHOU 1298; C) 2007 
GUANGZHOU 1249 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. Not for release outside U.S. government channels. Not 
for internet publication. 
 
¶1. (SBU) Summary: Business is booming for product testing firms in 
south China.  With heightened awareness of product safety risks 
among manufacturers and stricter enforcement by Chinese authorities, 
testing firms anticipate continued rapid growth and in some 
instances are literally working around the clock to meet demand. 
Chemical and safety testing remain the firms' largest offerings; 
they are adding new services to further improve quality, generate 
new business, meet the challenges of competing global safety 
standards, and enhance their understanding of potential risks posed 
by innovative and untested products.  Even as the role of testing 
companies increases, executives reiterated that ultimate 
responsibility for product safety remains with importers.  End 
summary. 
 
Product Testing Industry Sees Rapid China Growth 
--------------------------------------------- --- 
 
¶2. (SBU) Last year's toy and other product safety-related recalls of 
Chinese goods (ref A) substantially increased orders for chemical 
testing on consumer products at south China's major third-party 
testing companies.  Managers at Intertek, TUV Rheinland, 
Underwriter's Laboratory (UL), SGS, and Centre Testing International 
(CTI) all told us recently that they had seen impressive revenue 
growth in 2007.  Executives from U.S. firm Intertek said post-recall 
testing revenue increased by RMB 50 million (approximately US$7 
million) in late 2007, requiring laboratory staff to work three 
shifts around the clock. 
 
¶3. (SBU) Third-party product testing has been an important industry 
in south China since the area's manufacturing boom began, but growth 
has taken off in the last 2-3 years.  An executive from TUV 
Rheinland, China's sixth-largest testing firm, told us there are 
200-300 product testing firms operating in China.  He said 
multinational testing firms number approximately 30-40, occupying 
most of the industry's top spots.  Chemical testing of consumer 
products (primarily for compliance with the European RoHS standard 
and testing for other hazardous materials) and safety testing of 
household electronics and appliances are the most important sources 
of revenue, but testing firms reported a growing customer interest 
in environmental and automobile testing that was not common in China 
until very recently. 
 
SGS - Industry Leader 
--------------------- 
 
¶4. (SBU) SGS is the largest product testing firm in China, employing 
5,000 employees here out of a global workforce of 43,000. 
Executives at the Swiss firm told us they had seen 15-percent growth 
in their China operations in 2006.  Most testing firms acknowledge 
that SGS controls the largest market share for RoHS and other 
chemical testing in China.  However, the firm's managers told us 
they earn more revenue from site inspections, consisting of factory 
visits and randomized quality testing, as well as pre-shipment 
inspections at ports and other logistics facilities.  SGS executives 
also reported that fuels and minerals testing are rapidly expanding 
at key Chinese ports where the bulk of such materials are imported. 
 
 
UL - A Different Model 
---------------------- 
 
¶5. (SBU) Chicago-based Underwriter's Laboratory (UL) takes a 
different approach to the product testing market.  The non-profit 
corporation controls the largest market share for safety testing of 
consumer electronics and household appliances.  Its business model 
differs from other companies; it primarily sells licenses to 
affiliated laboratories and certifying lab results for testing 
performed at each site (currently more than 50 different 
UL-certified labs in south China alone).  Most UL-certified products 
are destined for North America.  UL has only 7,000 employees 
worldwide with just 500 in China -- less than half the size of many 
 
GUANGZHOU 00000146  002 OF 003 
 
 
of its multinational competitors.  However, it has doubled its south 
China workforce to 175 in the last year.  Executives at UL said that 
although competition among testing firms is increasing rapidly, the 
market is also growing so quickly that there is ample room for each 
company to continue growing with it. 
 
CTI - China's Champion 
---------------------- 
 
¶6. (SBU) Centre Testing International (CTI) is widely regarded as 
the largest Chinese product testing firm, and also the youngest firm 
among market leaders here.  Founded in late 2003, CTI has grown 
rapidly to more than 1,200 employees working at offices in major 
cities and ports throughout China.  Vice President Paul Nie pointed 
out that many of CTI's executives have strong backgrounds in product 
testing, many having worked previously in multinational testing 
firms. 
 
¶7. (SBU) CTI's Clients include several major multinational 
companies, even as it seeks to leverage its local-company status and 
attract more local exporters to purchase testing services.  However, 
Nie emphatically denied that the firm had any investment from the 
Chinese government or other direct links to the authorities.  CTI 
executives seemed intent on burnishing the company's credentials as 
an independent third-party testing firm.  Multinational firms, by 
contrast, were eager to highlight their close relationship with the 
government.  Intertek executives noted that their firm was preparing 
to enter a joint venture with the Guangdong branch of China 
Inspection and Quarantine Service (CIQ). 
 
Challenges of Differing Regulatory Standards 
-------------------------------------------- 
 
¶8. (SBU) Variations among regulatory standards continue to pose 
difficulties for manufacturers, exporters, importers and everyone 
involved in the supply chain, according to executives at all five 
testing firms.  Compliance with competing toy safety standards in 
Europe and North America are challenging for anyone involved in that 
industry, causing many toys to be tested twice for the same types of 
safety concerns such as drop height or lead content.  Textiles were 
another common concern, with firms complaining about many unique 
U.S. quality and safety standards that differ from ISO standards 
commonly accepted in other countries.  Several of the testing 
companies described participating in standards development with 
national governments and international standards bodies like ANSI 
and IECEE, clearly hoping to help move toward more unified global 
standards. 
 
Industry Cooperates to Avoid Duplication 
---------------------------------------- 
 
¶9. (SBU) Executives at several firms highlighted the CB Scheme 
(Certification Bodies Scheme), managed by a subgroup of the 
International Electrotechnical Commission (IEC) as an important 
industry initiative to reduce duplicate testing.  Focusing mostly on 
standards for electrical products and components, the CB Scheme 
would make it easier for certified testing labs to voluntarily 
recognize test procedures and data from competitors, reducing costly 
test duplication as manufacturers share information across 
laboratories and national borders.  As products are introduced to 
new markets or requirements change, new product testing can 
supplement prior test results, without the need to duplicate those 
tests. 
 
Testing Companies Expand Offerings 
---------------------------------- 
 
¶10. (SBU) Testing company executives said innovation in the industry 
will continue with the development of new technologies and 
methodologies and the emergence of new safety and quality concerns. 
Intertek was recently named as a third-party auditor for Wal-Mart 
Global Procurement's pre-screening of potential manufacturers (ref 
B).  TUV Rheinland described a new proprietary software system 
designed to help firms improve supply chain security by tracking all 
components and materials included in products at each stage of 
production and sales.  More companies are ordering testing to check 
the advertising claims of competitors, according Intertek's Francis 
Yuk.  Firms found to be making false claims can be significantly 
 
GUANGZHOU 00000146  003 OF 003 
 
 
penalized under U.S. Federal Communications Commission 
truth-in-advertising regulations.  Performance testing is also a 
major growth area, with manufacturers seeking to test both their own 
products and their competitors' products, as companies strive to win 
more sales in diverse global markets. 
 
Safety: Risk and Responsibility 
------------------------------- 
 
¶11. (SBU) Despite the best efforts of testing companies to ensure 
products meet the safety and quality standards of importing 
countries, executives also stressed that the burden of proof and 
responsibility for failures remain entirely with the importer. 
Testing company executives pointed out that standards cannot always 
anticipate safety threats introduced by innovative products, as in 
last year's Aqua Dots recall (ref C).  Instead, manufacturers, 
importers and testing firms must do their best to anticipate and 
manage risks, which sometimes includes seeking additional 
information from outside experts and testing bodies when an 
innovative product seems to meet existing guidelines but might still 
pose a previously unidentified risk to consumers. 
 
GOLDBERG