Fraudbusters Hunt Down Fake Shoes, Expired Food in China.

http://www.bloomberg.com/news/2014-12-24/fraudbusters-hunt-down-fake-shoes-expired-food-in-china.html

Xu Dajiang spends at least three days a week in supermarkets inChina scrutinizing products. He’s not shopping for bargains; he’s looking for any sign of flaws -- an expired sell-by date, a forbidden ingredient, an exaggerated claim on a package, or outright counterfeit.

Earning a living as a professional fraudbuster, Xu is a consumer turned consumer protector, searching for any wrongdoing by local and multinational companies that can be used to file a claim with a retailer and collect damages.

“There will always be manufacturers who treat the law with indifference and flout it no matter how much you tighten the regulations,” he said. “That’s when fraudbusters like me have a role to play.”

Fraudbusting is flourishing in China, thanks to continued food and product safety scandals and a revised consumer protection law enacted in March that increases compensation for those who buy damaged or fake goods. The law allows consumers to try to recoup as much as three times the cost of the original product or service purchased. They can file class actions for the first time. The law also carries stiffer penalties for businesses that mislead shoppers.

Chinese and international regulators have been cracking down on wrongdoing in the wake of scandals over tainted infant formula and drugs. But consumers still greatly distrust retailers. According to the State Administration for Industry and Commerce, 3.8 billion yuan ($610 million) worth of poor-quality goods were sold in China from 2010 to 2012.

Law Violations

Wang estimates there are about 100 professional fraudbusters in each of China’s biggest cities, including Beijing, Shanghai and Shenzhen. There are no official figures on the industry. With little more than the experience of buying a faulty product, fraudbusters can earn as much as 300,000 yuan a year -- more than three times the average urban wage in Beijing, he said.

Improving Standards

Fines vary and are a multiple of what the product costs. For expired food items, consumers can claim two fines -- three times the product’s price, under the revised consumer protection law; and 10 times the product’s price, under China’s food safety law. Cases over false advertising may take months to settle, Xu said.

Companies such as Carrefour SA (CA) and Wal-Mart Stores Inc. (WMT) said they’re working to improve food standards and supervision. Carrefour lets customers scan bar codes in-store using smartphones to check on an item’s expiration date and production origins. Wal-Mart replaces or offers refunds for faulty products and treats fraudbusters no differently than other customers, said Ray Bracy, a company spokesman in Shenzhen. “They often want to be treated specially, with extraordinary compensation demands,” he said.

“Exposing product issues is clearly a good thing,” said James Feldkamp, the co-founder of Mingjian, a Chinese website that provides independent product reviews. “The question is what you do with it.” Fraudbusters could use their gains to fund consumer advocacy programs, he suggested.

Ye Guang, a former government employee who works as a fraudbuster in Chongqing, said he expects the next few years to be a “golden age” for professional fraudbusters.

‘China’s laws and legal enforcement structure are maturing,’’ he said. “Manufacturers aren’t catching up.”

Chinese shoppers visit a supermarket in downtown Beijing, China. Chinese and international regulators have been cracking down on wrongdoing in the wake of scandals over tainted infant formula and drugs. But consumers still greatly distrust retailers.