I was interviewing Emily, a twentysomething Shanghainese woman, about her eating habits. Emily had flowing black hair and shapely shoulders and carried herself with the self-assurance of someone who has been told she could be a model and knows it. She wore a stylish dark-blue dress that matched her looks, mottled brown pumps, and a bright pink Hello Kitty wristwatch. As we spoke she drank a Frappuccino while she constantly messaged her friends on her iPhone 4. Then she suddenly said to me, “I love Kentucky Fried Chicken. I go there all the time because it’s healthful.” I did a slight double take. Since when is KFC considered healthful?

I pressed Emily to explain. She said, “I know fried food isn’t really healthful, but I trust KFC to be safe.” I asked her what she meant. “First, I trust that KFC uses real cooking oil,” she said. “Lots of street vendors use recycled oil from sewers. I don’t think KFC would do that. And they wouldn’t put cardboard in their batter—I heard some dumpling restaurants do that to save money. And I don’t think they would use expired or tainted ingredients. Many restaurants dye their food or add all kinds of additives that are toxic.”

The more Emily and I talked, the clearer it became that she did not consider Kentucky Fried Chicken and other fast food chains like McDonald’s and Dunkin’ Donuts “healthful” in the conventional sense. She knew fatty, oily foods could cause heart disease and a host of other problems, like diabetes. But she saw Western fast-food options as offering safer food than many local restaurants. She worried that unscrupulous businesspeople, farmers, and restaurant owners would cut corners on safety to make a few extra bucks, so she preferred to dine in foreign-owned restaurants or big domestic chains, such as Babela’s Kitchen, because she trusted they would not use poor-quality ingredients. Because of consumers high trust in KFC, when they had a chicken quality scandal in autumn of 2013, they heavily criticized the company. Some store sales have not recovered to the prescandal days.

Emboldened and enriched by better educational and work opportunities, as outlined in Chapter 4, young women like Emily have the money and sophistication to demand better-quality food, and they are willing to pay higher prices for safer and healthier food options. Companies cannot ignore the trend toward spending more on good-quality food. They must build trust with consumers, offer premium healthful options, and never do anything to breach that trust (unlike KFC).

In 2013 my firm interviewed 2,000 Chinese consumers in eight cities about their dining habits. We found that Emily’s response was not unusual. After years of food scandals hitting the nation’s food supply chain—such as the dairy scandal in 2008, in which tens of thousands of babies were sickened from drinking infant formula tainted with melamine—my firm’s research suggests many Chinese trust Western fast-food brands such as McDonald’s because they believe they would not cut corners in the supply-chain process. Like Emily, they all know that a healthful diet should not include too much oil, meat, or fat, but they often view Western fast-food companies as safer alternatives to local restaurants. Because many consumers lead busy work lives and have more money to spend on leisure, eating at home and cooking their own meals has become less commonplace. We also found they will pay a premium when buying food from trusted sources, especially food destined for children.

It is not hard to see why Chinese consumers are so fearful about eating toxic or contaminated food. Stories abound in newspapers and online forums of local farmers, restaurants, and supermarkets selling expired meat, injecting additives to make pork look like beef, mislabeling products, and even pumping watermelon and other fruits with dirty water to make them heavier. One woman told me that her mother bought ready-to-eat shrimp that she thought looked nice and pink, but she washed them in a pot to be safe, just in case the shrimp were a little dirty. To her horror, dye began leaking from the shrimp into the water and turned it pink. She threw the shrimp out, scared of what their quality might be and what chemicals might have been added.

One of the surer signs that there are serious problems with the food supply chain is that most people with direct industry experience are even more cautious than laypeople. I once told my local fruit vendor that I like to eat apples without peeling them, and she looked at me like I was crazy, even when I told her I scrubbed the skin with fruit soap. She told me if I saw how farmers grew produce, and what kind of chemicals they spray on them, I would never think about eating the skin again. She said farmers used the cheapest chemicals possible, which are deadly to not only bugs and bacteria but also frequently humans, and often colored the fruit to make it more appealing.

A senior, China-based executive at one of the world’s largest hypermarket chains told me to be very careful about what I eat. He said his company spends millions of dollars ensuring safety and teaching farmers proper ways to handle food. “Some of the hygiene practices farmers use is sickening,” he told me. “They just don’t know how to keep produce clean. They use chemicals to kill bugs. They either do not know or do not care if the chemicals can also kill humans. They often do not clean processing areas enough, so they are basically breeding grounds for bacteria.” Instead of taking tea in restaurants, the hypermarket executive told me he carries his own bags of tea imported from abroad everywhere he goes because he is not sure how clean the tea leaves used in restaurants are.

China’s food supply chain is clearly a mess that is literally poisoning the Chinese population. It is causing global fears and a backlash because China plays such a critical role in the global food supply chain. Many processed foods lining the aisles of U.S. supermarkets contain ingredients that began their journey in China.

Concerned about the scope of the problem and the anger welling up in the domestic population and throughout the world, the government has given fairly free rein to the state-owned media to uncover issues and help press for change. Newspapers chronicle problems in restaurants or in dairies nearly every day.

Smarter companies are taking advantage of these fears by investing millions to ensure better oversight of the supply chain. They seek to build trust with consumers by offering safe food and strive to never do anything to damage that trust as KFC did. McDonald’s, for instance, has invested millions to ensure they have an adequate supply of the potatoes they use for their French fries.

In a survey of 5,000 consumers in 15 cities, my firm found that food and product safety were far and away Chinese consumers’ biggest concerns in life. The vast majority of respondents were more worried about these factors than being able to pay for medical bills or their children’s education. Moreover, if they had the money, they would be willing to pay 20 percent more for trustworthy brands of any type of product they or their families might ingest (or could inhale, like paint or varnish on furniture). Many even told us they preferred to buy furniture products from Scandinavian furniture retailer IKEA because they believed it would use good-quality glue and varnish that would not hurt throats and lungs if the smell were inhaled.

China’s government understands the dangers of the crisis of trust in the country’s food supply chain and has made fixing it a priority. The government has urged consolidation in the supply chain, and the just retired premier, Wen Jiabao, has pushed for more farmers’ markets to cut its length because the longer it is, the more likely that problems will occur.

Many of the food-supply problems are so entrenched that progress is slow despite public demand. Major changes are being driven by restaurant chains like McDonald’s and Starbucks and supermarket chains like Carrefour, which see the need for reliable food sources and are rushing to improve direct oversight to cater to consumer demands. They know that by offering trustworthy products they can gain loyal customers and charge more.

Chinese consumers increasingly have the income, the sophistication, and the demand for healthful and safe products. Brands should be forewarned that consumers are unforgiving of those that become associated with tainted products.

Another good example is Ajisen Ramen, a Chinese-owned Japanese-style noodle chain that is one of the most popular restaurant brands in the country, with nearly 600 outlets. In 2011 Ajisen came under heavy criticism after it was alleged that staff used flavor packets to prepare the broth for its soup noodles rather than boiling pork bones, as Ajisen claimed in its advertisements. Until the scandal, consumers told my firm one of the main reasons they ate at Ajisen was that they thought quality standards were higher than at most mom-and-pop noodle shops and that it used safe ingredients.

After the scandal, Ajisen’s stock price took a beating, dropping more than 40 percent at one point, as investors feared consumers would shun the outlets. The company’s chief executive officer, Poon Wai, was rumored to have lost more than $100 million when the share price fell. It would have been much cheaper, both for him and the company, to live up to the standards it had claimed in its ads in the first place. Now Ajisen will have to spend millions to rebuild trust with consumers, and it will take a while for the share price to rebound—if it ever does.

Dozens of Walmart executives in Chongqing were detained in October 2011 when it was found they were mislabeling organic meat. The local government shut 13 stores for two weeks. In 2014 inspections of products sold in Walmart found that one supplier was selling fox meat instead of donkey meat as on the package. One Beijing woman told me, “If Walmart as a trusted foreign brand breaches trust like that, I am scared to think about what local retailers do.”

The demand for better-quality food from Chinese consumers will also strain global commodity markets and add to worldwide inflationary pressures. If you look at a globe, you will see China is a big country—really big. It has a slightly larger land area than the United States, including Alaska and other territories, but the scary part is that only 7 percent, or around 1 million square kilometers of it, is arable. Much of the country is desert and mountains that make farming impossible. Pollution and urbanization are depleting China’s aquifers even further and are forcing the nation to source more and more of its food from other countries. A nation known the world over for rice has even become a major importer of the white grain, as its farmers convert rice-producing fields to cropland for higher-priced produce and nuts that can be exported to the United States and Europe.

The son of one major military figure told me that he was investing heavily in pistachio and almond farms in Xinjiang. He had the goal of replacing California as a major nut-producing sector.

For some countries and companies, the shift of Chinese diets toward higher protein and calorie consumption represents an opportunity, if they can switch their croplands to raise the produce and meats Chinese want. According to U.S. Department of Agriculture data, China imported more than $15 billion in food products from America in 2011, up from $6.7 billion in 2006, and is now the second-largest importer after Canada. Within two decades, as waistlines get bigger, China will likely replace Canada. Already America has become China’s largest supplier of agricultural products (specifically, U.S.-grown corn and soybeans, according to the state-owned newspaperChina Daily. Some analysts expect China’s demand for corn from the United States to reach 15 million metric tons within three years.

Chinese demand for U.S.-raised meat products will continue to grow as incomes rise and Chinese get more accustomed to meat-laden diets. Exports of pork to China increased fivefold between 2010 and 2011 to 200 million tons. Right now, Chinese consumption of meat per capita is half of America’s—more than 125 kilograms per year.

Although some companies will benefit from evolving Chinese appetites that demand better-quality food products, problems could emerge as global food supply chains get strained. Speculators from around the world are sitting in cafés to see how many cups of coffee Chinese buy so they can make bets on the coffee bean market. Coffee bean prices hit all-time highs in 2011 largely because of increased demand for coffee from Chinese consumers. Unless technology can keep up with China’s growing food demands, it is likely that global food prices will increase.

• • •

For nearly eight years, I regularly ate at what I thought was a Subway sandwich shop located a minute from my office. The shop is in the lobby of a towering skyscraper in the heart of Lujiazui, Shanghai’s financial district, and its tenants include the Chinese headquarters for many Fortune 500 firms. Rolls-Royces and Mercedes line its parking lot. The Shanghai Stock Exchange is a 30-second walk away, and 2 minutes away is the Shanghai World Financial Center, the tallest building in China.

Every day the Subway shop was packed by Western and Chinese executives craving tasty, healthful food and maybe a cookie or pack of potato chips. Sometimes the wait to order was 30 minutes long. The outlet had the exact same menu, signs, and uniforms as every other Subway restaurant in America and China. This shop wasn’t ashanzai—the term used for obviously fake imitations of famous products or brands you see around China, often with bizarre or comical names like Starbooks, McDnoald’s, or Pizza Huh.

No, this was a real Subway restaurant in every perceptible way, with the exception of two minor discrepancies that a reasonable person might assume were the fault of poorly trained staff or a sloppy franchise owner. The first was that instead of wrapping sandwiches in wax paper with the Subway logo, the staff used generic wrappers that simply said, “Good Food.” The second was that the cookies always looked slightly flat, as if the bakers had not added enough baking soda to the batter.

I never gave these discrepancies a second thought until, one day, we interviewed a former Subway executive who told us that the sandwich shop was a complete fake. It was opened by unscrupulous entrepreneurs who had set up multiple fake Subways throughout the country. The executive told me that was why the cookies looked different and the daily promotions in that outlet varied from those in others.

Subway corporate headquarters had even sued the owners of the fake Subway several years earlier in a Chinese court and had won. The court ordered the shop to close and pay a fine. The problem was that there was little enforcement of court decisions, so for years the restaurant kept running without any change. Hundreds of people a day, including me, ate lunch at a fake Subway located at one of the most prestigious addresses in China. Subway kept up the legal pressure, to little effect.

After years of court battles, the restaurant near my office started making subtle changes. For a time the “b” in the subway sign over the restaurant was blocked out. Once that happened, customers started wondering what was going on. I asked one of the employees, who shrugged and told me the sign was broken. I had my suspicions. When I went to another Subway outlet, the clerk told me that it was a fake Subway.

Employees at the fake Subway papered over other letters in the sign, a new one every month or two—a stalling tactic for the courts, but one that caused concern among more and more consumers. The lines started to thin, and word began to get out that the deli was actually a fake outlet.

Years later, the restaurant finally took down the sign altogether. Today, the shop still uses menus identical to those at the real Subway located a block away in the Shanghai World Financial Center. The owners changed the sandwich wrappers, though; they now feature a new logo, with lettering practically identical to Subway’s but with a slightly different name: Starway.

The brazenness of some of the copying in China is breathtaking. Worse, from a consumer protection standpoint, is the poor enforcement. This business was able to operate for years, despite being found liable by a Chinese court for infringing on Subway’s intellectual property.

Contrary to Western opinion, which believes Chinese courts are stacked against Western companies, it is quite common in intellectual property infringement cases for Chinese courts to find in favor of Western brands and order penalties. The problem comes with enforcement—no one shuts down the infracting party. Additionally, many of the laws on the books don’t carry adequate punishments. Fines are simply too low to act as a disincentive to counterfeiters; often they pay them and carry on. One lawyer even told me that it was not worth suing a company. His legal fees would be more than the judgment, and it was unlikely that a court order would stop the infringement anyway. It was better to take your case to the consumer, he said, and get them to boycott fakes and buy the real thing.

Although the law failed to stop the fake Subway and shut it down, consumer activism did not. As word got out that the Subway store was a fake and not undergoing renovations (this is what staff told customers), fewer and fewer people ate there. Now at lunchtime there are no lines at the sandwich counter, even though the food and prices are the same as two years ago. Consumers do not want to eat food from a fake brand because they are worried about the safety of the products sold.

I was talking about the shop with a Chinese financial services executive who works in the area. Disgusted and indignant, he said, “If that owner was willing to cheat Subway so much with all their money and lawyers, that owner would be willing to sell me bad-quality food. Who knows what kind of meats they sell? I will never eat there again because the food might harm me.” The owner of that fake Subway might have made a lot of money for years by cheating Subway and consumers, but his store is now devoid of consumers, and he is stuck with a long-term lease. Meanwhile, at the Shanghai World Financial Center, the real Subway continues to do brisk business, with lines dozens deep often extending out the door.

How can you trust a restaurant to sell genuinely safe food when penalties for blatantly flouting the law are so light? In an environment with a weak judicial system and unscrupulous food executives, it is little wonder that Chinese consumers have become extremely cautious about what they eat. Many younger people, like Emily, look to Starbucks and McDonald’s to provide food that is at the very least safe, if not exactly healthful.

• • •

The same fears about buying expired, tainted, or poor-quality products inform shopping choices at the supermarket. My personal experience as a parent in China mirrors the problems and fears that many young parents have shared with me. In 2007, after my son, Tom, was born, I flew to Hong Kong or America every three months to buy baby formula. Back home in Shanghai, my wife, Jessica, and I bought only imported baby food, even if it was several times more expensive than domestic alternatives, and only at supermarkets like Jenny Lou’s (a high-end shop catering to expatriates and wealthy Chinese) that we trusted not to label jars falsely as imports or to intentionally sell expired or poor-quality products. It was exhausting thinking about not only what food to buy but also which brands and sales channels I could trust when shopping for my son. The purchasing process became a major topic of conversation between my wife and me at nearly every meal.

My firm’s research showed me that many Chinese parents are similarly frustrated and spend lots of money and time to try and mitigate the chances of giving their children poor-quality food. One Beijing father in his thirties told me that he shops only at the French hypermarket Carrefour because he trusts them to sell only genuine items. “Smaller supermarkets might sell expired goods or even fake ones,” he continued. “You can’t just buy based on brand anymore—there are too many fakes. You have to use a trustworthy store as well.”

Cross-border baby formula shopping trips like the ones I used to take are now so common that in Hong Kong, it has become nearly impossible for locals to buy formula because parents from mainland China are always buying it up. Mothers in Hong Kong complained that they often could not find formula for their children, and rules have been implemented to limit the number of cans that one person may buy. I used to spend entire days visiting a well-worn path of stores to restock my son’s three-month supply, bumping into other parents from the mainland doing the same thing. Hong Kong police often report arrests after fights break out in stores as desperate mainland shoppers try to snatch up the last cans.

Hong Kong’s Independent Commission Against Corruption reported that 18 people were arrested in May 2011 for skirting the quota on baby formula purchases. Chinese entrepreneurs would work with supermarket staff to buy cans in Hong Kong to ship back to China to sell through word of mouth or online to Chinese consumers. That’s right—desperation for safe food is so high that gangs are moving away from drugs, pirated DVDs, and prostitution to sell baby formula.

When it comes to children and babies especially, Chinese parents are willing to do anything within their budgets to ensure that they are buying something safe and nontoxic. As my wife and I found out, buying baby products in a country with constant product and food safety scandals, involving everything from lead-painted toys to pork masquerading as beef, is a scary prospect.

Many parents—ourselves included—turned to Internet forums in droves to seek advice on trustworthy and nontrustworthy baby-product labels. The problem is that fears are so high, and the market so rife with rumors, that it is hard to know what to trust anymore. A rumor on a microblogging site is enough to destroy a company’s reputation and bottom line.

Dozens of websites enumerate the pros and cons of different brands and warn against labels that are commonly counterfeited or may be tainted. One mother commenting on a forum warned against buying Nestlé baby formula because she feared the fact that the brand had factories in the northeast, China’s rust belt. She worried that pollution from all the heavy industry in the region would seep into the soil and contaminate the grass the cows grazed. Other mothers disagreed, saying Nestlé was trustworthy because it is a foreign brand and therefore less likely than domestic Chinese brands to cut corners in the production process. Some mothers spoke knowingly about certain labels and expiration dates that indicated counterfeit products. As it turned out, these seemingly irrational fears for our newborns were not as crazy as they seemed.

In 2008, a year after my son was born, the whole country was engulfed by the news of a scandal that halted the country’s milk supply chain. Thousands of babies became sick from tainted milk because unscrupulous people were adding melamine—a chemical that can cause cancer or damage to reproductive systems—to falsify that the dairy products had sufficient levels of protein during quality checks. Sales of imported yogurt shot up as desperate parents feared all dairy supplies produced in China. More parents, if they could afford it, traveled abroad to buy food. Many switched away from dairy products altogether to soy milk. Breastfeeding became popular again, with some poorer women selling their breast milk to feed babies with wealthier parents.

Despite government efforts to crack down on the dairy supply chain that had produced this catastrophe, finding trustworthy milk in China can still be a harrowing experience. Three years after the original scandal, in 2011 the government shut 50 percent of the dairies because officials were finding that many producers were still adding melamine. The government has been forcing more consolidation in the industry to ensure better oversight. In August 2011 the government announced it had arrested 2,000 people and shut 4,900 businesses to clean up the food supply chain. Yet that is likely a small drop in a bucket because the problems are so immense.

The Chinese government absolutely needs to work on safeguarding the food supply chain for export and internal consumption if it wants to keep the support of the people. It needs to write new laws and enforce them better, or else confidence in and support for the government will wane. Hefty fines and jail terms as well as capital punishment need to be increased to serve as real deterrents. Situations like the fake Subway operating for years despite a judicial ruling against it can no longer be allowed, and simple fines are not enough.

Part of the problem is that laws set by the central government are not always carried out by local officials because of outright corruption or inefficiency. Far too often, local officials are not arrested or sacked en masse. Instead, the government metes out a severe sentence to senior officials in the hopes of scaring the entire bureaucracy. That strategy rarely works, so a more broad-based and transparent enforcement system needs to be implemented to stop problems and regain consumer confidence in the food supply chain.

These problems, however, provide opportunities for market-oriented brands that understand the evolving Chinese consumer to launch supply chains and marketing campaigns that engender trust. They must never do anything to harm their reputation, as Ajisen and Walmart did, and they need to spend more money up front to ensure safety. Their initial investments will pay dividends in the long term with profits and brand loyalty.

Chinese dairy brands like Mengniu and Yili have already responded to the demands of the market. They understand the need to prove to their customers that their supply chains are safe, and they are investing heavily to modernize their production facilities and advertise these improvements. That is why Mengniu is charging more for their yogurt products than foreign brands: to emphasize their high quality. Western fast-food brands such as McDonald’s understand that consumers like Emily patronize them because they trust their quality control as much as the food’s taste. Their advertising campaigns emphasize health to allay consumers’ fears about dining out and then dying from eating toxic products.

Consumer demand for better quality is forcing companies to end the practice of a Cheap China. Financially it is more beneficial to sell healthful and safe products at a premium than to focus on cutting costs at the expense of product quality.