Thursday, October 13, 2011

Foreign Supermarket Resentment

A Wal-Mart in Nanchang, shortly after its opening in 2005

Is there a war against foreign supermarkets in China? The Chongqing arrest of Wal-Mart employees for repeatedly passing off conventional pork as premium "green food" pork has received huge publicity and Wal-Mart has closed all its outlets in Chongqing. In January of this year, Carrefour and Wal-Mart outlets were singled out for fraudulent pricing behavior.

Why are Carrefour and Wal-Mart being singled out? Are these fortune-500 companies more shifty and dishonest than other retailers in China? Surely not.

These crackdowns are likely to some degree a reflection of growing resentment in China against foreign supermarket chains that is starting to pop up in the Chinese press.

The release of the 2010 list of top-100 retailers highlighted the growing influence of foreign chains in the Chinese supermarket sector, noting that five foreign chains opened 140 new stores, a faster growth rate than domestic supermarkets.

An article that appeared in January this year about the same time as the price-cheating accusations provided a megaphone to a Zhejiang supermarket executive and Peoples Congress representative to complain about unfair competition from foreign supermarkets. He called for local governments to give domestic supermarkets a helping hand, perhaps a clue to a behind-the-scenes campaign against foreign supermarkets launched this year.

The official claimed that 90% of large supermarkets in large cities like Shanghai and Hangzhou are foreign companies with little space for domestic supermarket chains to survive. The official claimed that foreign supermarkets had come into China like a flood after WTO accession. Chinese supermarkets are like small shoots in a rice field that are washed away.

According to the Zhejiang supermarket official, domestic supermarket chains have to keep moving to more remote markets as foreign supermarkets extend their reach. First, foreign supermarkets enter big cities, pushing domestics to small cities. Then foreign companies enter small cities, pushing the domestics to towns, etc. "We go where the foreigners don't want to go," said the official. Domestic supermarkets are pushed "up the mountain and down to the countryside."

The official complained that cities entice foreign supermarkets into their city as an "image project," offering them free land and tax advantages. Domestic chains pay more in taxes and are obliged to hire workers. He claims that domestic chains have a larger "social responsibility" that the foreign chains evade.

Unable to compete with foreign chains on an equal footing, the Zhejiang executive urges local government officials to hold the business of domestic supermarkets together. Otherwise, the domestic chains will be forced to keep moving to more remote places that foreign companies are not interested in or be absorbed by the foreign companies.

Another criticism was posted on a public forum in April by a person who returned to his hometown in Shandong and was shocked at the low prices foreign supermarkets pay farmers for their vegetables. "Foreign supermarkets buy at low prices, exploiting China’s producers; foreign supermarkets [sell at] high prices, exploiting Chinese consumers!"

Another posting, apparently in response to the price-cheating allegations, points out the folly of singling out foreign supermarkets for cheating on prices. This poster points out that the supermarket stores are run day-to-day by Chinese people; the foreigners only show up for big events or major decisions. He calls the foreigners fools for blindly turning over their stores to Chinese people. "Only people with an IQ below 50 can think that [cheating people on prices] is a foreigner’s trick. What a joke! Carrefour is a fortune 500 company. Cheating people on prices like this would destroy their reputation--how many years will it take to repair [the damage]? This kind of price cheating can only happen in China."

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