Why is China different for western brands?

Western retail companies have found there are real business benefits to going green. But when the same firms enter the Chinese consumer market, Paul French finds, the standards often change.

The environment debate is moving up the agenda in China, not least because Chinese people increasingly care about green issues. You can see it in the record numbers of young Chinese looking for internships at green NGOs, for instance, or in the so-called “middle class” protests around issues like the proposed petrochemical plant in Xiamen, Fujian province, or this year’s anti-Maglev demonstrations in Shanghai.

For western companies, the need for an environmental strategy in China is essential. Yet those companies working at the interface between Chinese consumers and western brands appear to be the most lax. This is perplexing to those of us working in the Chinese retail and consumer market, where doing the right thing ultimately means gaining consumer loyalty and a competitive advantage. Being “eco-friendly” in the consumer sphere can have a far more immediately tangible business benefit than in industry or manufacturing. However, brands seem to have missed this seemingly self-evident point.

Many non-Chinese consumer brands operate in China, but do not implement the same range of “eco-friendly” initiatives that they do in Europe, North America or, indeed, other parts of Asia. Consider, for instance, some examples from the fast-food business, one industry that has not matched the environmental and health-improvement standards it applies in other countries with the same degree of effort in China:

• In Hong Kong, McDonald’s has two “no straw days” every month, but it does not have them on the Chinese mainland. The company does not substitute super-size options for a “Gofit” adult happy meal in China, as it does in the United States. McDonald’s Happy Meals targeted at children in the US come with “better-for-you” substitutes, such as milk and apple dippers, but not in China;

• Burger King, which has just announced a major expansion of outlets in China, in many countries offers chilled apple slices as an alternative to french fries, with no-fat apple sauce dips. They already offer milk as an alternative to cola in many markets, but they do not offer any of these items in China;

• Sandwich-chain Subway is expanding quickly in China. In the US, the chain has launched a “Fresh Fit for Kids” menu, with apples or raisins as a replacement for potato crisps; but not in China;

• Starbucks now offers low-calorie drinks and better food options for kids in the west; but, again, not in China;

• In Singapore, Minute Maid orange juice comes with a series of “Lifewise” tips from the National Healthcare Group, stressing the importance of exercise and vitamin intake. No such advice is dispensed on Minute Maid’s packaging in China.

And it is not just the fast-food giants:

• Banking chain HSBC sends its mail in Hong Kong on recyclable paper, in envelopes that note the bank is committed to protecting the environment. None of this is mentioned on envelopes sent to Chinese mainland addresses;

• Luxury retailer LVMH’s new Catherine Deneuve-led advertising campaign features a tag line that supports the Climate Project. It appears everywhere from London to Hong Kong, but not on their ads in the Chinese mainland;

Others planning to come into the Chinese market have so far remained uncommitted. Retailers Marks and Spencer aim to open in China later this year, but will not say if their Chinese stores will confirm to their much-hyped corporate social responsibility package, “Plan A” (“because there is no Plan B”, as they put it).

What can we conclude from this? Perhaps fast-food companies only do the right thing when public opinion forces them to. Maybe they think where there are few chains offering anything substantially different, there is less chance people will go elsewhere.

Western brands, however, do comply where legislation has forced change. Walk into a branch of Burger King or McDonald’s in Taiwan, for example, and the rubbish bins are separated for recycling, as local laws demand. How difficult would it be to introduce separate bins in mainland China? It one example where western brands could take the lead and provide a focus for China’s growing band of environmentally concerned citizens, rather than sit back and do nothing until it is mandated.

This year, however, things will change as new rules come in to limit wasteful and non-recyclable packaging. Until now, packaging legislation in China has related more to hygiene issues, but the government is now drafting legislation aimed at reducing waste. The new laws will have far-reaching implications for the entire consumer products supply chain: manufacturers, packagers, distributors, suppliers of raw ingredients and production equipment, as well as advertisers and marketers. They will also affect the requirement to collect and recycle packaging waste. Crucially for product manufacturers, the new legislation will mandate that “the entity that pollutes shall control the pollution, the entity packaging the products shall be responsible for disposal of abandoned packaging materials”. In practice, this means that all packaging produced should be either recyclable or degradable – and must be recoverable. Manufacturers and retailers will have to reduce the amount and weight of packaging they use, and they will be encouraged to improve materials and technology.

The government will also demand the introduction of waste recovery and recycling systems. This will affect local governments, but it will also fall back on manufacturers and retailers, under the same premise that “the entity that pollutes…”. This is one area where foreign companies should expect to be targeted and “outed” if they do not comply.

Furthermore, the government will regulate the transportation and storage of recyclable and recycled materials; a “recycled materials trading system” is to be established under “market” conditions (this may resemble a carbon trading market). To assist the companies involved, the government has announced that it is preparing a detailed catalogue of materials and production processes that have been categorised into groups according to whether they are to be “encouraged, restricted or become obsolete (banned)”.

All very well, but – as with most such legislation in China – the proof will be in the enforcement. To police the new packaging legislation, China will set up new inter-agency enforcement teams that span central and local government departments. These may be part of the planned shake-up of the central government’s ministerial structure, expected later in 2008. These agencies will be empowered to inflict penalties on companies for infringements of the new regulations, including bringing criminal proceedings.

Understanding that the public itself can be mobilised to act as the eyes and ears of the government, the legislation will include provisions for whistle-blowers to be given the right to report the waste of resources, environmental damage and the excessive use of packaging. The provisions include state protection for whistle-blowers, as well as rewards for bringing legitimate cases – a strong incentive in an increasingly litigious society such as China’s.

Similarly indicative of this sea-change in government policy, the Chinese government has announced it will to ban shops from giving away free plastic shopping bags, effective from June 2008. This is a further bid to curb the country’s massive and spiralling pollution problem. The State Council has targeted the ultra-thin plastic bags routinely given out by retailers, but will cover all kinds of plastic bags. This, the government hopes, will encourage consumers to use reusable cloth bags or shopping baskets instead, and to think more about how they use – and waste – packaging. To date, only IKEA actively encourages shoppers to buy their recyclable bags, others still give them away in large volumes.

Hopefully these new regulations will force retailers to rise to the challenge and encourage Chinese consumers to become more aware. It is sad, however, that western brands and retailers could have easily been ahead of the curve, really taken the lead and raised the bar above what the government now requires. But they did not – and it does not reflect well on them.

Paul French is the Chief China Analyst at Access Asia, a consumer markets research firm. He lives in Shanghai

Homepage photo by mars