No love at home for Made in China

Chinese shoppers love foreign brands but walk away when they see "Made in China" labels.

Doris Phua, the chief executive of the furniture retailer Da Vinci. The company is alleged to have passed off made-in-China goods as expensive Italian designer items.

The founders of the Asian luxury furniture company Da Vincitried to convey an image of European sophistication and quality by naming the business after a famed Italian artist.

The company prominently advertises its products, from elegant 19th-century-style chairs to unashamedly modern settees, as Italian-made. Accordingly, it charges premium prices.

But the company's claims of ties with European suppliers and manufacturers have come under intense scrutiny in China in recent weeks, to the extent that the company's future in the country, where it has a series of high-end outlets, is in doubt.

China Central Television has questioned whether the high-end furniture is really produced in Europe, amid suggestions that it is local contractors who craft the luxury settees, chairs, cabinets and other items.

An attempt by Doris Phua, the chief executive, to clear the air at a news conference, where she was flanked by representatives of foreign suppliers, did little to help.

After an interruption by an angry customer who claimed to have spent hundreds of thousands of dollars on foreign furniture he now believed could have been made in China, Ms Phua fled in a flood of tears.

Amid a barrage of conflicting claims, the truth of the situation remains unclear. Trading standards officials have sealed up much of the company's furniture in its showrooms to allow investigations to take place, and the affair is far from over.

But what the controversy has shown unambiguously is the preference of many Chinese people for foreign-made products.

Some customers were incandescent with rage when it was suggested that the expensive furniture they bought may have been made in China.

Chinese shoppers are often fiercely patriotic, but it appears many have little regard for the Made in China label.

"Not only the Chinese people, but people in developing economies, they tend to think products made in developed countries are more reliable and better quality," says Kineta Hung, an associate professor and an advertising, marketing and consumer behaviour specialist at Hong Kong Baptist University.

It is easy to find people in Beijing who are wary of buying Chinese-made products.

Xu Qiang, 30, who works in a water-bottling factory, said foreign-made goods were "high quality", while those from China were "totally different".

"Sometimes you think the products may not last long, and after you buy Chinese products, it's very hard to get good service. Foreign products have very good service," he says.

Wang Changhe, 34, an interior designer, says most Chinese people "really want to buy their own Chinese-branded products" but have been put off by repeated scare stories, including those centred on food, notably milk products.

"In the past few years there have been a lot of negative news reports about [Chinese] products. That's why Chinese people don't trust products made in China," he says.

The fallout from food tragedies continues, with the milk powder brand Edison prominently displaying the word "imported" on its billboards. This is hardly surprising, given that more than a dozen Chinese milk powder companies were found to be adding the industrial compound melamine to milk products to artificially inflate the protein content.

When it comes to the car industry, it appears that if foreign-made is too expensive, with import duties increasing the cost of imported cars, a locally assembled global brand is the next best thing.

The roads are dominated by locally manufactured Volkswagens, Audis, Buicks, Chevrolets and Toyotas. Foreign brands account for about two thirds of the market.

In the electronics industry, a foreign brand name also carries a premium, even if the product is made in China. Three quarters of China's electronics output is for foreign-funded enterprises. And many Chinese companies come up with Western-sounding names in the hope that this will convince consumers their products are better.

"The majority of Chinese consumers have this entrenched view that foreign brands must be better," says Chiang Jeongwen, a professor of marketing at the China Europe International Business School in Shanghai.

While many people believe foreign is better, Chinese-made products "have caught up quite rapidly in the past 10 years", Prof Hung says.

But despite the gains, local manufacturers still face an image problem. A potential buyer may think a Chinese product is reasonably good, but that person is unlikely to consider it as top quality, even if it is.

"To make people perceive it as excellent, it's a step that's difficult to take. Producing premium-class [products to compete] with foreign-made brands is difficult," she says.

The image problem helps to explain why it can be tough for Chinese companies to break into the luxury goods market.

While state media have speculated that this year China could surpass Japan to become the world's largest market for luxury goods, it is foreign companies such as Louis Vuitton, Burberry and Gucci that are reaping the benefits.

The Chinese companies most likely to succeed in the luxury goods market are those with porcelain or jade products, according to the research company CLSA Asia-Pacific Markets.

"In the meantime, we expect Asian companies to acquire European brands and build up manufacturing expertise," the company said in a report released this year.

If the regulatory environment improves so that Chinese people have greater confidence in the quality and safety of Chinese-made goods, and if domestic companies are able to develop stronger brand images, the preference in China for all things foreign may eventually dwindle. There is, however, little sign so far this is happening, Prof Hung says.

"I don't think it's going away," she says. "It does seem that when the Chinese people are becoming wealthier, there's even more of a tendency to buy foreign-made products."

The key to breaking this pattern, she believes, is for Chinese manufacturers to focus on "affordable innovation", coming up with new technologies without costs spiralling out of control.

"This is something that's coming up," she says.