It is truly amazing the robust GDP growth of China over the last 35 years. Of course, every fast moving emerging nation will have its day of reckoning if it cannot or chooses not to control its growth. It is also amazing the number of US companies and corporations who want in on the action as their middle class emerges and turns into the World's biggest ever consumer class - well at least those are the predictions right?
Recently, I read a piece in the International Business Section of the Wall Street Journal "Asian Business" on May 7, 2011 titled "China Fines Unilever for Price Comments" by Paul Sonne and Laurie Burkitt with Eliot Gao in Beijing and Ellen Byron in New York contributing to the article. Yes, you read the title correctly, the Dutch Company was fined for merely mentioning the future price increases. Wow, that's interesting isn't it? Sure it is, but one shouldn't be too surprised. The article had stated;
"The fine issued to Unilever comes as Chinese consumers have grown fearful of the increasing costs of their food and other daily necessities. To soothe their woes, China's leaders, who believe state power is a critical component to maintaining economic growth and stability, have stepped in. But the Chinese government has limited tools to curb inflation in part because of its exchange-rate regime."
First, no one should be surprised that commodity prices have risen and that consumer product companies will have to raise prices. Second, no one should be surprised that Unilever put out a press release and mentioned it to their shareholders, as that is the right thing to do, explain how Unilever is going to maintain growth, and profit. Third, no one should be surprised at the aggressive stance of the Chinese government as it does control its media and has come out with its own press releases claiming it has inflation under control - not hardly, but that is the official party line.
It is rather interesting that China which on one hand is a communist nation, but uses capitalism to propel efficiency and growth would then try a Socialist tactic against some of the greatest free-market companies. Fining free-market companies for telling the truth is a real problem, something we might expect from Hugo Chavez in Venezuela, Rafael Correa of Ecuador, or Evo Morales of Bolivia. Apparently, in China the "official news media" is the truth, and it trumps all reality, including the reality of free-trade, fair-trade, and free-markets. That's a real problem, and that's the truth.
You see, a government cannot mandate economic performance, and the further it gets from free-market thinking, the faster the decline of that economy will occur. It seems now that China is headed for an economic implosion and is trying to stave it off as long as possible, rather than letting the market-place do it's magic and bringing the balance back to the global reality. In many regards, no one should be the least bit surprised, but it does add a layer of caution to those companies that think they are going to make substantial profits from China's emerging middle class.
Why? Well, a couple of reasons. One, if a company starts making money, who knows what arbitrary rules China might make in the future. Two, if China keeps up such economic suicide tactics, there won't be a middle class to sell to anyway. Look, here is the bottom line; not many things shake me or become a red flag on my radar screen. Indeed, I could have predicted such a regulatory move like this, as there have been many in the past, and I suspect many more to come, but, it ought to be a warning and a caution flag to Western World free-market corporations doing business in China. Please consider all this.
