China's Wal-Mart sanctions: A trend against foreign firms?

HONG KONG -- Wal-Mart's latest run-in with the Chinese government is fanning fears that China is rolling up the welcome mat for foreign companies.

This month, officials in the southwestern city of Chongqing ordered 13 Wal-Mart stores closed for 15 days because the retailer had sold less-expensive pork as the more-expensive organic variety. Authorities also fined the retailer nearly $423,000 and arrested two Wal-Mart employees, according to Xinhua, China's official news agency.

The retailer had been in the government's cross hairs before, but the harsh penalty imposed this time against Wal-Mart — the world's largest retailer and a symbol of Corporate America— is seen by some as a proxy for China's sentiment toward foreign businesses. Wal-Mart, which has 353 stores in China, plans to reopen its Chongqing outlets on Oct. 15.

"If I were a foreign company, I'd be pretty scared right now," says Corbett Wall, a retail expert who heads +CW Associates, a Shanghai consulting firm. "I absolutely think that (what happened to Wal-Mart) has to do with tensions building up between China and foreign companies."

Wal-Mart spokesman Anthony Rose said the company is "cooperating fully" with Chongqing officials' investigation. Zuo Yong of the Chongqing Administration of Commerce and Industry has told Xinhua, that Wal-Mart "violated laws and regulations and infringed upon the rights of consumers."

In a country where rules are as plentiful as opportunities, it's not hard to find companies that believe it's getting harder to do business in China. But this perception is being fueled by a raft of recent penalties imposed on foreign companies, a new tax on foreign workers, and Chinese policies that appear to favor domestic businesses. Foreign companies, once aggressively courted by government officials who were judged on their ability to attract outside investment, worry that they're being sidelined as Chinese companies emerge as competitive threats. A handful of foreign executives — including General Electric CEO Jeffrey Immelt — have taken the unusual step of complaining publicly about what they perceive to be China's unfriendly business climate.

Other foreign companies have also been fined by the Chinese government. Carrefour was fined for putting the wrong prices on products, while Unilever was penalized for saying it planned to raise prices.

When the government took action against Unilever — the world's second-largest consumer goods company — in May, it said that the company's comments to Chinese media had led consumers to stockpile products. The government objected because such behavior could undermine its goal to control inflation. Unilever's hefty fine of more than $300,000 was seen by some analysts as a warning that foreign companies' relationship with the government was deteriorating.

By cracking down on Wal-Mart, the Chinese government is also "setting an example," says Yujun Qiu, a retail analyst at Planet Retail. It signals that "this could be a very sensitive period of time (for foreign companies), and they should be careful."

Other experts aren't so sure. While the Wal-Mart case has "created a little more uncertainty" for foreign companies, it's unclear what one incident means, says Torsten Stocker, a Shanghai-based partner at Monitor Group, a U.S. consulting firm.