Foreign firms in China under growing media scrutiny

SHANGHAI Tue Sep 6, 2011 6:01am EDT

A Chinese national flag waves in front of the former headquarters of Google China in Beijing June 2, 2011. REUTERS/Jason Lee

A Chinese national flag waves in front of the former headquarters of Google China in Beijing June 2, 2011.

Credit: Reuters/Jason Lee

SHANGHAI (Reuters) - Major Western firms are under increasing scrutiny from China's state media, facing exposes and fiery criticism over hot issues like food safety, and made easy targets by their high profiles and lack of political protection.

In the past few weeks, a series of accusations have been levelled at well-known Western brands -- including Unilever's (ULVR.L)(UNc.AS) Knorr brand, and Yum Brands Inc's (YUM.N) Kentucky Fried Chicken -- that they had falsely labelled their products.

The attention has spread beyond food issues to other multinationals, including ConocoPhillips (COP.N) which received a pasting in the press for its handling of an oil spill, and even some high profile local firms like Internet search engine Baidu (BIDU.O), China's answer to Google Inc. (GOOG.O)

Analysts say the growing popularity of microblogging only increases the risk that foreign businesses in China will attract unwelcome media attention.

Much of it so far has been over food safety, focus of a government clampdown and a major concern for Chinese consumers since a tainted milk scandal in 2008 which killed at least six children and sickened more than 300,000.

Domestic firms have their share of bad press, but multinational companies make more attractive targets, analysts say.

"When it's a big name ... it's more sensational because everyone knows these brands or there is high awareness in the market," said Benjamin Cavender, associate principal at Shanghai-based consultancy China Market Research.

"The government is certainly concerned about making sure they can rectify some of these issues because they really want to drive ... consumption and part of that is building trust among consumers and ensuring that the whole market is safe," Cavender said.

Others point out that foreign companies lack the influence their domestic competitors can use to fend off negative publicity.

And, they add, the authorities may hope that criticism of foreign companies could be useful in putting pressure on local firms to shape up.

"If they are indirectly trying to influence other companies to adhere to the regulations, then the multinationals are easy targets because they are high profile and not protected by local interests," said an industry insider who declined to be identified because of the sensitivity of the issue.

"It's not fair, but that tends to be what happens."

In a recent example, ConocoPhillips has come under intense criticism from state media over an oil spill at its oilfield in northern Bohai Bay which started in June. The State Oceanic Administration SOA.L has threatened to sue ConocoPhillips, but not its state-owned partner CNOOC (0883.HK).

FOOD SAFETY

Some accusations of food safety violations have come even though the companies involved are acting in line with international practice and Chinese regulations, according to analysts.

For instance, the state-run Jiefang Daily newspaper ran a report in late August citing consumers' concern that the wording on some product labels from Knorr, a Unilever brand that makes soups and sauces, was too vague.

It said consumers were complaining that labels that read certain ingredients "may" be contained in some products -- a standard practice for cautioning consumers that trace amounts of some allergenic ingredients could be contained in a product -- was misleading.

As a result of the report, some supermarkets were reported to have pulled Knorr products off their shelves. Unilever said it was following international practices and that Chinese authorities had noted it was in line with its regulations.

Faced with high public concerns over food and product safety, China has been taking a hard-line approach to offenders of safety violations.

In July, a Chinese court handed out lengthy prison sentences, including a suspended death penalty, to five people involved in producing and selling pork tainted with a poisonous chemical.

Beijing also said it would offer rewards to people who blow the whistle on food safety violations like the illegal use of additives or sale of meat from animals which die of disease, in its latest attempt to crack on the problem.

Increasing scrutiny from the media has also triggered sell-offs in companies' shares.

SOCIAL MEDIA A NEW CONCERN

Japanese-style food chain Ajisen (China) Holdings Ltd (0538.HK) came under fire for misleading advertising on the nutritional content of its pig-bone soup base in August, sending its shares down nearly 20 percent to 13-month lows. The firm, which was fined last year for using excessive amounts of additives, has apologised.

Kent Kedl, managing director of Greater China and North Asia at consultancy firm Control Risks, said that in addition to potential risk for businesses from intense state media attention, the influence from social media, like as Sina's Twitter-like Weibo, is increasing.

For instance, KFC, which had advertised that all its soy milk products were fresh, offered a public apology after a blogger on Weibo posted a photo of soy milk powder being carried into one of its outlets.

"When we work with food companies ... in dealing with crisis management planning we are equally concerned about Weibo and other social media as we are of the official media," Kedl said.

"If you look at the train accident (in July), the netizens were given top billing as a source of influence."

(Editing by Jason Subler and Jonathan Thatcher)

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