China's punishment of Wal-Mart Stores for selling ordinary pork labeled as organic seems excessive, could be partly politically motivated, analysts say; officials closed 13 stores for two weeks, arrested two employees, fined company US$421,000

Cindy Allen

Cindy Allen

Oct 14, 2011 – Associated Press

BEIJING , October 14, 2011 () – Wal-Mart is getting another public bludgeoning in China as popular anger over food safety makes the retail giant an easy target for political point scoring ahead of a central government leadership shuffle.

Authorities in the city of Chongqing have arrested two employees, closed 13 Wal-Mart stores for two weeks and fined the company 2.7 million yuan ($421,000).

Even though Wal-Mart has developed a reputation for lax quality control in China, analysts said the penalties seem harsh in light of the violation: passing off regular pork as higher-priced organic meat.

"It seems very excessive. I could see if they were ordered to stop selling pork or to shut down their fresh meat cases," said Torsten Stocker, Hong Kong-based head of the consumer goods practice at U.S. consulting firm Monitor Group. "But why close down the entire store? It seems a very strong reaction."

Wal-Mart, based in Bentonville, Arkansas, said it was cooperating with the Chinese government's investigation into the problem but declined to comment further. Chongqing officials could not be reached for comment.

Food safety is a sensitive issue in China. In recent years, the country has been rocked by a series of food scandals, from deadly infant formula to chemical-laced pork and recycled restaurant oil tainted with potentially deadly molds.

Central and local level leaders are keen to show they are tackling the problem.

The China Industry and Commerce News said in an online report Wednesday that Wal-Mart's treatment was part of a food safety campaign launched by Chongqing earlier this year and that authorities there were taking a "zero tolerance" approach toward violators.

Such tough talk is characteristic of the city under Bo Xilai, the Communist Party secretary of the sprawling metropolis who has won acclaim for cracking down on gangs, prostitution and other organized crime.

Bo has also burnished Chongqing's nationalist credentials by encouraging residents to sing Mao-era propaganda tunes, or "red songs." He is in competition with other provincial party secretaries for a top position in Beijing next year or in 2013.

Since entering China in 1996, Wal-Mart has grown to over 300 stores in over 120 cities. While it resists efforts to form labor unions in its stores elsewhere, it faced an organizing campaign by China's state-sanctioned labor group in 2006. The company ultimately agreed to cooperate in forming unions in China outlets.

Stocker, the consultant, said going after a high-profile company like Wal-Mart and hitting them with a hefty punishment is consistent with Bo's patriotic and also tough-on-crime image and dovetails with his political agenda.

"It's probably a mixture of political positioning ahead of the leadership transition, with people there (in Chongqing) wanting to be seen as consumer advocates, and also an effort to balance some of the bad press Chinese companies have gotten, to show that they're not the only ones with problems," said Stocker.

Pork is China's most popular meat but the industry is riddled with problems. Growing demand, disease outbreaks and the weeding out of small farms have squeezed supplies and sent pork prices skyrocketing, unnerving the government. Producers have been caught boosting pig weight by injecting their animals with water, and feeding them the banned drug clenbuterol to produce leaner meat.

Last year a Chongqing court gave a suspended death sentence to a local gang leader and pork mogul known as the 'butcher of Chongqing.' Local media said the man, Wang Tianlun, used threats and violence to corner 40 percent of the city's pork market and forced buyers to purchase water-injected meat.

Reports said Wang's dealings were partially to blame for a 20-month run on pork prices in Chongqing between 2006 and 2008.

In light of the other issues troubling the pork industry, Wal-Mart's mislabeling violations seemed minor, Stocker said.

But this is not the first time the company has run into trouble.

Earlier this year, both Wal-Mart and Carrefour were both ordered to pay up to 500,000 yuan ($75,900) in fines for over charging on items in their stores.

To some, that wrist slap appeared as much about cooling public anger over inflation as getting the retail giants to toe the line.

This time, Chongqing officials also lashed out publicly at the company, with one saying the problems were "a reflection of the company's dysfunctional management."

"The Wal-Mart stores in Chongqing have once and again violated laws and regulations and infringed upon the rights of consumers," Zuo Yong of the Chongqing Administration of Commerce and Industry, told the official Xinhua news agency. The report said Wal-Mart has been punished by the Chongqing government 21 times since 2006 for exaggerated advertising and selling expired and substandard food.

Wal-Mart's vice president for corporate affairs in Asia, Anthony Rose, declined to respond directly to Zuo's comments.

In an email message Thursday, Lane said "All we can say is that we continue to cooperate on the investigation."

Another official from the same Chongqing administration, Luo Deyong, told Xinhua that Wal-Mart and retail giants like it were "monopolies that have kidnapped consumers."

"This should be food for thought and a warning to China moving forward," Luo said.

In a blog post Monday on the Business Insider website, Beijing lawyer Stan Abrams wrote that some in China's foreign investment community were wondering whether Wal-Mart was being targeted simply for being foreign -- but that such practices were nothing new.

"Foreign invested enterprises in China often receive additional regulatory scrutiny compared to their domestic counterparts," Abrams wrote. "That's why lawyers like myself always tell our clients to keep their metaphorical noses clean."

"One could say that the real mystery here is why Wal-Mart allowed this to happen, via lax quality control, in the first place," Abrams wrote.

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