Wal-Mart Green Pork Scandal: A Lingering Odor of Victimization

October 28, 2011

This will make it three posts on Wal-Mart’s recent problems in Chongqing regarding the decision by the local government there to temporarily shut down 13 stores because of a food labeling problem. Now that the stores are back open, one would expect that everything is back to normal and the press attention would cease. But no, there seems to be a lingering belief that Wal-Mart was the victim here, punished unfairly because it is a foreign company.

It’s the tone of these articles that tell the story, like this one in The Economist:

Wal-Mart, an American supermarket chain, has been having a tough time recently in China, one of its fastest growing markets. On October 25th it reopened 13 stores in the south-western region of Chongqing which were closed for two weeks as punishment for mislabelling a pork product. Chinese officials have recently had a pang of food-safety conscience, and a big foreign firm has offered an easy target.

I wrote about this first on October 10, posing the question why Wal-Mart’s punishment was so severe given the comparatively harmless violation of mislabeling normal pork as organic meat. The possible explanations I cited included a get-tough campaign on food-related violations, the longstanding poor relationship between Wal-Mart and the local authorities in Chongqing, and the retailer’s status as a foreign-invested enterprise. I stated up front that I did not know the answer to the question I threw out.

My second post, on October 19, was a rant against a ridiculous exercise in China bashing masquerading as a news article on the Wal-Mart story that ran in the Wall Street Journal. In that article, the (unsupported) assumption was that Wal-Mart had been singled out chiefly because of its foreign company status.

I get the feeling that this is the memory we will be left with, and when folks look back on this mini-scandal in later years, the ‘Wal-Mart as foreign victim’ angle will be paramount. Demagoguery from the usual domestic suspects aren’t helping to stoke these fears, by the way, irrelevant though this commentary may be.

We’ve seen this sort of thing before of course. When Chinese wish to cite an example of American protectionism, they often use Huawei’s unsuccessful bid for equity in 3COM in 2008; similarly, when foreigners bring up incidents of Chinese protectionism, Coca-Cola’s failed acquisition of Huiyuan that same year is commonly listed. In both instances, protectionism was never more than speculation, never proven.

If Wal-Mart’s green pork scandal ultimately ends up on the list of protectionist horror stories, it would be a shame. Since the time I wrote my first post on this a few weeks ago, the details that have emerged about Wal-Mart’s problems in Chongqing have, if anything, reinforced the theory that the U.S. retailer brought a lot of this trouble on itself. Reuters has some of the uncomfortable background facts:

The Chongqing administration had already cited Wal-Mart stores 20 times in the past five years for violations ranging from food sold past expiration dates to selling products that were deemed “substandard,” including washing machines, television sets and women’s clothing.

[ . . . ]

Deciding it had a case, the AIC called in the police and expanded the probe. Authorities found that 12 of Wal-Mart’s 13 stores in Chongqing were selling mislabeled organic pork.

To the AIC, that was the last straw.

“Many times we sent our opinions and sent them notices,” Zhao said. “They never explained anything to us clearly.”

AIC investigators then delved into Wal-Mart’s inventory books.

“As the No.1 retailer, their management has been perfected,” Zhao said. “They can track anything.”

Investigators traced the organic pork to a local meat supplier called Gaojin. Interviewing employees at Gaojin, the numbers didn’t add up.

Investigators worked out that of more than 78,500 kilograms of pork sold in Walmart stores since January 2010 as organic, only 15,000 kg, or 19 percent, was organic meat.

“They sold more than 600,000 yuan ($95,240) worth of false organic pork,” Zhao said. “That’s consumer fraud.”

Thirteen stores and a lot of product. Doesn’t look so good, particularly for company that prides itself on inventory control. Yes, the AIC came down hard on Wal-Mart in this case, but again, given their history and the current food safety campaign, this does not appear to be a sinister pogrom against foreigners.

Prediction: if I do a keyword search on “China” “foreign investment” and “protectionism” one or two years from now, I will get more than a few hits about Wal-Mart and organic meat.

Update: Just saw this article in Bloomberg: “China’s New Protectionism.” Supports my overall point quite well I think.