As long time readers of this blog know, one of our consistent themes has always been that foreign companies in China should not expect to be treated the same as Chinese domestic companies, no matter what the laws may say. The reality (not just in China) is that it is usually good politics to go after foreign companies and it is usually bad politics to go after domestic companies. The reality also is that when a large number of citizens have a particular problem, it is very good politics for the government to show that it is trying to solve it.
Right now, inflation is a big issue/problem for China’s citizens and last week China went after a foreign company to show that it is trying to solve it. And in an article, entitled, “Unilever gets mouth washed out for remark,” the China Daily wants to let the world (or at least China’s own citizens) know about it:
China has levied a fine on consumer products giant Unilever of 2 million yuan ($310,000) for talking to Chinese media about planned price hikes that sparked panic buying of shampoo and detergents in late March.
The National Development and Reform Commission (NDRC) imposed the fine after finding the Anglo-Dutch company “illegally disseminated news of price hikes and disturbed market order”, the top economic planning agency said in a statement on its website on Friday.
In late March, several cities in China suffered panic buying for household items. The NDRC said these were due to Unilever China spokesman and Vice-President Zeng Xiwen, who suggested in media reports that a price hike was in store for consumer products due to the soaring cost of raw materials.
I am not sure what law Unilever violated (and I am not about to spend the multiple hours necessary to figure it out, but I am guessing it relates to price-fixing:
Unilever’s shampoo, skincare and laundry detergent products account for 12 percent, 12.6 percent and 15.2 percent of domestic market share, so discussing a price rise in advance will likely lead to a price hike in the whole industry, the NDRC said.
Quite wisely, Unilever is taking the decision and the fine sitting down:
“We accept the decision of the NDRC and Shanghai Price Bureau. As a responsible company, we abide by laws and regulations in China and our global Code of Business Principles. Consumers are our top priority and we will continue to provide high quality products to the public,” Unilever said in a statement on Friday.
Then the China Daily implies (or flat out says?) that foreigners are to blame for China’s inflation:
“Being an influential company in China, Unilever should understand that any decision it makes will greatly impact the whole industry,” said Qi Xiaozhai, director of Shanghai Commercial Economic Research Center.
“Many multinational companies are taking advantage of China’s consumer markets because similar violations overseas will get more severe punishment,” said Qi.
* * * *
“Foreign companies get too many benefits compared to local companies, it’s time to make a change,” Pan Ping, a white-collar worker at a private company in Shanghai told China Daily.
Through the Unilever case, the Chinese government is trying to provide fair and transparent market conditions for both domestic and foreign companies, Pan added.
Back in 2007, I wrote of this same issue back in the context of China’s environmental laws, in a post entitled, “China Warns Foreign Companies On Pollution“:
China has always and will always (at least for the foreseeable future) enforce its laws more strictly against foreign companies than against domestic companies. I am constantly writing about this not to complain about it, but simply to point out the reality. Just because your Chinese domestic competitors are getting away with something does not in any way mean you will be allowed to do so.
Beijing is also now at the stage where it is pretty much neutral about all but the largest foreign companies remaining in China. I am not saying it is neutral about foreign direct investment (FDI) in general, but I am saying that it really could not care less about whether your individual business stays in China or goes. And if your business is a polluter, it actually would probably rather see you leave.
Lastly, going after foreign companies is politically popular.
I ended that post with the following:
Bottom Line: Obey the law, particularly the environmental laws. It is good business.
Unfortunately, I still do not have any better advice for you than that.
What do you think?
UPDATE: China Law Insight has come out with a great post, “Price hikes and price signaling,” explaining in detail the legal underpinnings for the fine against Unilever.
FURTHER UPDATE: China Business Blog and China Hearsay also have good posts on this.