PPE Scams Continue and How to Avoid Them
PANDEMIC AND THE NEW TRADE PARADIGM:
Why the Auction Market Is Replete With
Scams, Inferior, Unsafe and Fake Products.
By Siva Yam, CPA, CFA, President
and Paul Nash, Ph.D., Contributing Editor
United States of America-China Chamber of Commerce
Almost a year since the first case of Covid-19 was confirmed, the demand for PPE has not shown any sign of slowing. Along with the strong demand we have seen an increasing number of scams. First, they were face masks, covid-19 test, ventilators, and now they are all about gloves. While the demand for many PPEs remains strong, the abundant supply coupled with the crack down by the Chinese government have essentially kept scammers involved in face masks in check. However, when it comes to “gloves,” it is another story. The influx of scammers in gloves are due to the following:
There are many speculators who regret that they have missed the opportunities in the summer when there was a disparity of supply and demand. Hence, with a compulsion to make quick money, they become more willing to take chance. Many of them also believe in their own capabilities in understanding the market and are prone to be scammed.
Face masks are considered critical in minimizing the spread of covid-19, and the Chinese government had offered significant incentives and subsidies for factories to produce face masks and in a very short period of time the supply has surged.
When the Chinese government had become aware of the quality and scam issues, they took decisive actions to regulate the market – only registered companies and factories are allowed to export PPE; they created “White List” and “Black List” to qualify factories; all PPEs have to be cleared with the Chinese Customs before they are allowed to be exported; all PPEs have to be properly labelled with detailed information inside the packaging.
Chinese manufacturers typically did not like to sell gloves. The value added is low; the profit margin was not as high as the face masks; the shipping cost could be expensive due to weight; and there was very little or no incentive by the Chinese government.
There are a limited number of glove manufacturers in the world. Expanding the capacity will require larger investment than in the face mask industry. It is further constrained by the supply of raw materials. In addition, they learn the lesion that the price of the PPE could drop within a matter of the blink of eyes just like face masks, hand sanitizers and hence are unwillingness to increase the capacity just for short term demand.
While face masks are primarily produced in China, gloves are mainly in many developing countries in Southeast Asia. With a less developed trade system and lesser regulatory oversight, the industry is much more difficult to control.
The factories themselves are sometimes not transparent. On one hand, they alert their customers and the general public about the scams, but on the other hand, the messages sent out by them are less than being clear.
In general, when someone offers large quantity at competitive pricing, often below the prevailing market, they could be scammers. However, a world that the desire to make quick money dominates, someone seems to ignore the warning sign and miscalculates risks.