China’s New Protectionism

Italian luxury brand Gucci was accused of abusing employees in a Shenzhen boutique in October. All the companies apologized for the incidents, and Gucci replaced two store managers.

The real drubbing, however, has been reserved for Wal-Mart Stores (WMT) and France’s Carrefour. In January the retailers were fined for misleading pricing in 19 stores and duly apologized. Both paid fines for selling expired products in the city of Changsha earlier this month. Then regulators in Chongqing accused Wal-Mart of selling regular pork mislabeled as organic. The world’s biggest retailer was forced to temporarily shutter 13 stores, paid a $573,000 fine, and saw 37 employees detained. Two of its top China executives resigned. Again, there was a public apology.

To a growing number of business observers, the recurring humbling of Western businesses is symptomatic of a new protectionism, often emanating from local officials, aimed squarely at foreign investors across China. They say it is spurred in part by a slowing economy and cutthroat competition, which is hurting Chinese brands and prompting officials to lash out at foreign rivals in industries where mainland players have lagged. “Supermarkets are one area where the foreigners have been blowing the Chinese out of the water,” says Paul French, co-founder and director at consultancy Access Asia. “The attitude is: Why go to the effort of getting your own guys to raise their game when you can tear down a foreign guy instead?”

Tang Chuan, director of law enforcement in the Chongqing Bureau of Inspection and Enforcement, disagrees. “We are not targeting Wal-Mart,” says Tang, noting that since 2006 the U.S. retailing giant has been cited for 21 cases of selling expired or substandard food, as well as false advertising in Chongqing. “We wish to warn other retailers and purify the industry. Anyone who breaks the law, no matter foreign or domestic, big or small, will be punished.” Both Wal-Mart and Carrefour declined to be interviewed. Other foreign retailers in China, including France’s Auchan Group, Britain’s Tesco, and Germany’s Metro Group, have not been punished in cases made public.

The new protectionism stems from a broader change in Chinese attitudes: Where once localities vied for the prestige and money a big foreign investor brought, today multinationals are taken for granted. In a 2011 survey by the American Chamber of Commerce in the People’s Republic of China, almost a quarter of American companies cited “increased Chinese protectionism” as their greatest risk. “It is going to get harder to get permits, and these foreign companies won’t be as welcomed coming into important neighborhoods,” says Shaun Rein, managing director of China Market Research Group. “That’s because their capital isn’t as needed as it once was.”

Before China entered the World Trade Organization in 2001, foreign retailers as well as banks and insurance companies were banned from doing business in most cities in China. Today, such obvious restrictions are no longer an option. That’s brought about a more subtle protectionism, where state-controlled Chinese media can be counted on to make a national incident out of what otherwise might be a small infraction. While accusing retailers of violating quality rules is one common tactic, another is to fine them for “price fraud,” or not clearly marking the price of products. That’s what Wal-Mart and Carrefour were charged with by China’s National Development and Reform Commission earlier this year. “Fraudulent conducts, such as fabricating original prices and misleading customers with confused marked prices, have seriously infringed customers’ interests,” the website for state-owned China Radio International reported. Another Access Asia co-founder and director, Matthew Crabbe, says domestic companies do similar things but authorities often look away: “They have been coming down really hard on the foreign retailers. The idea that there was ever an even playing field is increasingly not true.”

One reason retailing has become ground zero for the new protectionism is that China’s $70 billion-a-year market for large grocery stores is still up for grabs. The industry, expected to double in size by 2015, is far more fragmented and regional than that in Europe or the U.S. There are more than 30 operators of hypermarkets (large food and beverage outlets that dwarf traditional Chinese stores), but few have a national presence. Wal-Mart, with 353 stores, has an 11.2 percent share, second only to the 12 percent held by France’s Auchan. The biggest local player, China Resources Enterprise, has a 9.8 percent share.

Wal-Mart didn’t help itself by selling mislabeled pork. Crises over melamine-tainted milk, exploding watermelons, and hormone-injected meats have pushed food quality concerns into the national spotlight—and into the crosshairs of politicians eager to show they’re serious about safety. “By cracking down on a high-profile foreign retailer, their message is being sent throughout the country to consumers and supply chains,” says China Market Research’s Rein. “They realize they can get the same traction by detaining a few dozen Wal-Mart people as with a national crackdown.”

Leave a Reply

Reset password

Enter your email address and we will send you a link to change your password.

Get started with your account

to save your favourite homes and more

Sign up with email

Get started with your account

to save your favourite homes and more

By clicking the «SIGN UP» button you agree to the Terms of Use and Privacy Policy
Powered by Estatik
error: Content is protected !!