China’s Corporate Crackdown

BEIJING – Multinational corporations are under siege in China. In recent months, the government has leveled a series of allegations of corporate misconduct – ranging from food-product contamination to price rigging, bribery, and environmental shortfalls – against foreign-owned companies, with important implications for the development of China’s business environment.

Does the government’s recent behavior reflect a commitment to strengthening business ethics, marking the start of a long-overdue regulatory catch-up process? Or is it intended merely to create a convenient populist distraction from China’s current economic woes? Or are these revelations of often long-known corporate misdemeanors part of a complex power play involving competing Chinese interests?

The answer probably is a combination of these factors. But, whatever the motivation, the message is clear: the age of irresponsible business in China is over.

The authorities’ new regulatory activism is late in coming, but it will ultimately benefit Chinese consumers and firms. The targeting of multinationals – which have long received preferential treatment, including subsidies and regulatory incentives, while profiteering from Chinese consumers’ distrust of locally made products’ quality and safety – portends the creation of a more level playing field. Given that booming sales of imported baby-food products have exemplified the problem of profiteering, the $100 million in fines recently incurred by a half-dozen international baby-formula producers over food-safety issues sent a particularly strong message.