Tianjin disaster a wake-up call to change business culture in China

Winston Mok says stricter regulation of licensing and oversight of chemical companies are needed to ensure they put safety before short-term profit, to build a lasting legacy for victims of the explosions

PUBLISHED : Wednesday, 19 August, 2015, 2:21pm
UPDATED : Wednesday, 19 August, 2015, 2:22pm

The warehouse containing the dangerous chemicals in Tianjin was clearly a ticking time bomb. Many questions remain, but there appear to be irregularities over licensing, zoning and management of the warehouse, operated by Ruihai International Logistics. For instance, how could so many dangerous chemicals be located so close to a residential area, a railway terminal and a major highway?

A maximum of 24 tonnes of cyanide was supposed to be stored on site, yet it appears there were hundreds of tonnes of potentially deadly sodium cyanide.

This is only the most recent and dramatic incident involving hazardous chemicals. While the consequences are dire for the industry, they may be just the most visible manifestation of ingrained business practices in China, including, first, putting connections before professionalism. Ruihai and two Sinochem affiliates are the only three private companies licensed to handle the storage of dangerous chemicals at the port. How did this small, new company obtain this coveted position? One key shareholder is reported to be the son of a retired official.

In China, the connected rather than the capable are sought out. A company that does not know precisely what is where at all times should not be allowed to operate this kind of business.

Loopholes must be closed. Strict enforcement is needed to ensure compliance

Second, low costs, no matter what. In light of the volume of dangerous chemicals stored, the warehouse infrastructure seems primitive at best. Most workers on-site appear to be casual labourers without rigorous training. Most important, the warehouse location, close to the port entrance to reduce transport costs, exposed nearby residents to unacceptable risks.

China's "low cost advantages" are often achieved at the expense of environmental degradation and exploitation of migrant workers' welfare. In the chemical industry, some firms realise higher profits by lowering safety standards.

Third, skirting the rules. Many firms exploit regulatory loopholes to obtain licences to operate in high-risk locations. The investigative authorities must discover who is accountable for this disaster, and examine the warehouse company, safety and environmental consulting firms, Tianjin Port Company and government departments.

The chemical manufacturers may also be liable if the chemicals were not packed correctly. As dangerous goods attract higher storage and handling charges, it is common practice for companies to mislabel products to reduce costs. But evidence may be hard to find after the blasts.

In the aftermath of the Tianjin blasts, the State Council ordered nationwide safety checks. But this is not a lasting solution. Too many accidents have happened. A high-level commission may be helpful to investigate the broader context if there are systematic safety failures in the industry chain.

But the best way to prevent future accidents must be with better legislation and enforcement on licensing and oversight of companies involved in the production, transport and storage of chemicals. Loopholes must be closed. Strict enforcement is needed to ensure compliance. Unsafe practices should result in heavy fines or closures. Key licence decisions must be open and transparent.

A new culture of ethical business, putting safety above short-term profits should be encouraged. If this tragedy can lead to deep reflection, galvanising the transformation towards socially responsible business practices, then the firefighters and police officers and all others who lost their lives in this disaster might not have died in vain.

Winston Mok is a private investor, a former private equity investor and McKinsey consultant. An MIT alumnus, he studied under three Nobel laureates in economics